Advance Commitment
Barron's Banking Dictionary:
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Advance Commitment
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.
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Advance Commitment
Investopedia Financial Dictionary:
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Advance Commitment
A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment.
Investopedia Says:
In financial markets, parties may make an advance commitment to sell an asset before they own it; the seller often buys a futures contract to offset the risk of a price increase at the time of purchase. In banking, a financial institution will make an advance commitment to a borrower to lend funds on a specified date on agreed-upon terms.
Note that in mortgage banking an advance commitment is called a "standby commitment."
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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