bank's moral commitment to lend, as distinct from its contractual, legal, commitment; alternate name for a line of credit. A bank line is an indication of a bank's willingness to lend to a particular borrower up to a predetermined amount, usually for working capital purposes, and for a one-to-three-year period. The line is renewable at the option of the lender, so long as the borrower meets certain conditions, for example, agreeing to keep a portion of the line in a compensating balance with the lender to maintain the business in sound financial condition. In some cases, the borrower may be asked to demonstrate his ability to operate without bank financing by periodically reducing the borrowed amount to zero (called a clean-up requirement).
Ordinarily, no commitment fee is charged, although the lender may assess a usage fee on funds actually advanced. An advised line is disclosed to the borrower, whereas a guidance line is used for internal credit monitoring by the lender and is not disclosed.
bank's moral commitment, as opposed to its contractual commitment, to make loans to a particular borrower up to a specified maximum during a specified period, usually one year. Because a bank line-also called a line of credit -is not a legal commitment, it is not customary to charge a commitment fee.
bank's moral commitment, as opposed to its contractual commitment, to make loans to a particular borrower up to a specified maximum during a specified period, usually one year. Because a bank line-also called a line of credit-is not a legal commitment, it is not customary to charge a commitment fee. It is common, however, to require that compensating balances be kept on deposit-typically 10% of the line, with an additional 10% of any borrowings under the line. Aline about which a customer is officially notified is called an advised line or confirmed line. A line that is an internal policy guide about which the customer is not informed is termed a guidance line.
