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. See also Evergreen Loan; Revolving Credit.
