Standby Fee Law and Legal Definition

A fee charged for standby commitment is standby fee. A standby fee is paid to a commercial bank in return for its legal commitment to lend funds that are not advanced. When a loan is not closed within a specified time, standby fee is forfeited. For example, let us assume that a construction company takes loan from a bank under the impression that the interest rate will decline during the construction period. The company enters into a loan commitment. Upon completing construction, the company can opt for continuing standby commitment or can forfeiture the standby fee paid.