Business Glossary

written promise or agreement to take some future action. The most common example is a contractual commitment a financial institution makes to lend funds to a borrower at a future date on terms agreed upon in advance, for example, a revolving credit agreement. The lender ordinarily charges a commitment fee and may require the borrower to keep part of the loan as a compensating balance in a checking account at the lending institution. A firm commitment is absolutely binding on the lender, whereas a conditional commitment is binding only if certain terms are met in the future, such as meeting certain tests of creditworthiness. In mortgage banking, an advance commitment is called a standby commitment .