What Is a Loan Commitment?
Loan commitments are the traditional off-balance-sheet business of commercial banks, and are commitments to guarantee that borrowers will be provided with capital loans when needed. Divided into open credit, standby commitment, revolving credit and bill insurance. Open credit is an informal agreement reached between the bank and the borrower. The bank intends to expand the credit limit at a prescribed interest rate within a certain period of time. Standby commitments are more binding, but the commitment period for open credits and standby commitments generally does not exceed one year. Revolving credit is a medium-term loan commitment, which is a bank guarantee to customers to borrow and repay funds after a rollover, and its time span is 3 to 5 years. If the borrower's financial situation deteriorates during this period, the bank will assume greater risks. Bill insurance is also a medium-term loan agreement in which the bank agrees to be purchased by the bank when the borrower cannot sell its bills. This commitment also bears greater risks. When the bank promises to the borrower, it will charge a corresponding commitment fee according to the risk. [1]
Loan commitment
- Loan commitments take many forms. Loan commitments can be classified in different ways based on factors such as the terms and conditions under which they are made:
- (1) According to whether the commitment party can cancel the commitment at any time without restriction, loan commitments can be divided into revocable loan commitments and
- As an item
- Handle the project
- From the date of issuance to the formal signing of the loan contract, it is generally 6 months and the longest is not more than 1 year.
- Loan commitments refer to the commitments made by financial institutions, such as commercial banks,
- Both loan commitments and loan intentions
- A loan commitment refers to a commitment made by a bank to a customer to provide the customer with an agreed amount of loan within a certain period of time in the future. In the case that the customer meets the withdrawal prerequisites agreed in the loan commitment, the bank meets the customer's borrowing needs according to the agreed amount, interest rate, time, period, etc.
- Product definition
- Refers to the bank's commitment to provide customers with certain intentions in a certain period of time in the future
- Loan Commitment Letter of Intent
- Object
- Enterprises (affiliates) and other economic organizations that have been approved by the State Administration for Industry and Commerce (or the competent authority) to engage in business activities according to law and have undergone annual inspection. 1. For the state-owned authority to officially approve the project, after the client completes the project feasibility study report for the fixed asset project, after the investigation and evaluation, after reviewing and agreeing to provide the fixed asset loan, a fixed asset project loan commitment letter can be provided. The loan commitment letter is a document that indicates to the relevant state departments that they agree to the loan to support the construction of the project when they approve the project feasibility study report for the client, which has a certain legal effect; 2. Only the fixed asset project proposal (or construction plan) is submitted to the client, Loans for fixed asset projects that have yet to be formally approved by the competent authority of the state. Upon preliminary approval of the loan, a letter of intent for loan for fixed asset projects can be provided. The letter of intent for fixed asset project loans is mainly a document that indicates the intention of support to the relevant state departments when the project proposal is approved for the client. The loan amount and liability terms cannot be agreed, and it has no legal effect. [5]
- condition
- 1. Open a basic or general account with a bank;
- 2. The project promised to be loan must be formally approved by the competent authority of the state, and the feasibility study report (the preliminary design document of the capital construction loan project) has been completed, and it is only a project that is subject to the approval or approval of the competent authority of the state;
- 3. The project capital and other construction funds are in place;
- 4. Obtain approvals or agreements related to land acquisition, water supply, power supply, gas supply and other competent authorities;
- 5. The business activities are normal and there is stable economic income. For new customers, it is not subject to this article.
- price
- Charged at the rate stipulated by the relevant bank management measures.