Firm Commitment

What Does Firm Commitment Mean?
1. A lending institution's promise to enter into a loan agreement with a specific entity within a certain period of time.

2. An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.

Investopedia explains Firm Commitment
1. The lender specifies the terms that that must be met in order for the loan to be processed. Also known as a "standby loan commitment".

2. In a firm commitment, underwriters act dealers and are responsible for any unsold inventory. The dealer profits from the spread between the purchase price and the public offering price. Also known as a "firm commitment underwriting".

Related Terms

Advance Commitment
Best Efforts
Bought Deal
Committed Facility
Competitive Bid
Dealer
Initial Public Offering - IPO
Negotiated Underwriting
Standby Underwriting
Underwriting
More Related Terms

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