Standby Commitment Law and Legal Definition

A standby commitment is a formal agreement by a bank agreeing to lend money to a borrower up to a specified amount for a specific period. It is also known as firm commitment lending. The amount given under standby commitment is to be used only in specified contingency. For example, giving a commitment to repay a construction loan in the event a permanent mortgage lender cannot be found. Loans offered for sale during a standby period can be converted to mandatory commitment any time during the term of a standby. A standby fee is charged for standby loan commitment. A customer can close a loan or allow the commitment to lapse.