Commitment Letter Template

In plain language: Identifies the issuing lender or investor, the borrower or investee, and a brief description of the transaction being financed.

Common mistake: Using a trade name instead of the lender's registered legal entity name — if the commitment is ever disputed, enforcing it against the correct entity becomes unnecessarily complicated.

In plain language: States the exact dollar amount committed and whether it is a term loan, revolving facility, mortgage, or equity investment.

Common mistake: Omitting the instrument type and relying solely on the dollar figure — different instruments carry fundamentally different repayment structures and borrower obligations.

In plain language: Specifies the applicable interest rate (fixed or variable, and the index if variable), origination fee, and commitment fee.

Common mistake: Leaving the rate as a range ('between 6% and 9%') rather than a fixed figure or a defined index-plus-spread formula — ranges invite later disputes about which rate applies.

In plain language: Defines the loan term, amortization schedule (if any), and the final maturity date when the outstanding balance is due.

Common mistake: Describing repayment as 'standard amortization' without specifying the period — a 20-year amortization with a 5-year balloon is materially different from a fully amortizing 5-year loan.

In plain language: Lists the specific deliverables the borrower must provide or satisfy before the lender is required to fund.

Common mistake: Using open-ended conditions like 'satisfactory due diligence' without specifying what constitutes satisfaction — this gives the lender a subjective exit and creates uncertainty for the borrower.

In plain language: Identifies the assets the borrower pledges to secure the loan and any lien priority the lender requires.

Common mistake: Failing to specify lien priority — a second-lien position has significantly less recovery value than a first lien and should be explicitly stated, not assumed.

In plain language: Sets the deadline for the borrower to accept the commitment in writing and describes how acceptance is communicated.

Common mistake: Not specifying a time zone on the expiration — for multi-jurisdiction transactions, ambiguous expiration times have caused legitimate commitment disputes.

In plain language: States clearly whether the letter is legally binding, non-binding, or binding only as to certain provisions such as exclusivity or confidentiality.

Common mistake: Omitting the binding-nature clause entirely — courts have held ambiguous commitment letters to be enforceable contracts when both parties behaved as though the deal was done.

A commitment letter is a formal written statement issued by a lender or investor confirming their intent to provide financing or capital under defined terms. It specifies the amount, instrument type, rate, repayment structure, and conditions the borrower must satisfy before funds are released. It is commonly required in real estate transactions, M&A deals, and commercial lending as evidence that financing is in place.

It depends on the language of the letter itself. Some commitment letters are expressly binding on the lender once accepted; others are stated as non-binding expressions of intent, subject to completion of due diligence and execution of definitive documents. Courts have in some cases found ambiguous letters to be enforceable, so the binding-nature clause should always be explicit. Review the specific language carefully before relying on a commitment letter as a firm funding guarantee.

A term sheet is typically an earlier, less formal document summarizing the key economic terms of a proposed deal — it is almost always non-binding. A commitment letter is issued after initial due diligence and represents a firmer, more detailed confirmation of financing intent. The commitment letter typically incorporates the term sheet's economics and adds conditions precedent, collateral requirements, and expiration mechanics.

A commitment letter confirms intent to lend under stated terms; a loan agreement is the definitive, fully binding contract that governs the actual lending relationship. The commitment letter typically precedes the loan agreement and is often a closing condition in real estate or M&A transactions. Once the loan agreement is executed and funds are disbursed, the commitment letter is superseded.

Conditions precedent are specific deliverables or approvals the borrower must satisfy before the lender is obligated to fund. Common examples include delivering audited financial statements, providing a satisfactory property appraisal, obtaining title insurance, and executing all definitive loan documents. Each condition should be described as a specific, objective item — vague conditions give the lender an unilateral exit and create closing uncertainty.

A commitment letter is valid until its stated expiration date, which typically ranges from 30 to 90 days depending on deal complexity. Once the expiration passes without the borrower's written acceptance and payment of any required commitment fee, the lender's obligation lapses. Extensions are sometimes granted but should always be confirmed in a separate written amendment to the original letter.

Commitment letters are most commonly issued by banks, credit unions, private lenders, and institutional investors. In real estate transactions, the mortgage lender issues one to satisfy the seller's proof-of-financing requirement. In M&A deals, the acquiring party's financing source issues one to support the buyer's ability to close. Private equity and venture investors may also issue commitment letters when confirming equity contributions.

Not automatically. Most commitment letters are conditioned on the borrower satisfying all conditions precedent and on no material adverse change occurring before closing. A binding commitment letter does create legal obligations for the lender, but if the borrower fails to meet a stated condition or the lender's credit approval expires, the commitment may lapse. Always read every condition carefully before treating a commitment letter as a funding guarantee.