Glossary · pricing

Commitment fee

Also called unused line fee, non-use fee, facility fee, standby fee.

A charge for the lender's promise to lend, calculated on money you have not borrowed — either up front on the whole facility or periodically on the undrawn portion.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

An unfunded commitment is not free to the lender. It ties up capital and, for a regulated institution, regulatory capital against a facility that earns nothing until you draw. The fee prices that, and it also discourages borrowers from asking for more headroom than they will use.

The two shapes

Up-front commitment or facility fee.A percentage of the facility size, paid at or before closing, whether or not you ever draw. Sometimes creditable against the first draw or against an origination fee; usually not.
Unused line fee.An annualised percentage charged periodically on the average undrawn balance. Quarterly in arrears is common.

The details that change the number

  • Whether the fee is calculated on the full commitment or only on the undrawn part
  • Whether letters of credit issued under the facility count as usage — they usually do
  • Whether there is a utilisation step-down, so the fee rate falls once you keep utilisation above a threshold
  • Whether the fee accrues during a period when the borrowing base, not the commitment, is limiting your draws — you can be paying for headroom the collateral would not support anyway

Where you find it

Bank lines of credit, asset-based revolvers, construction facilities and some SBA line structures. Short-term non-bank lines rarely charge one; they charge a fee per draw instead.

Where this one catches people

An unused-line fee turns an idle facility into a running cost, and businesses take the biggest line offered because a bigger number feels like a stronger position. Work out the annual cost of the headroom before you accept it.

The more useful comparison is structural. A commitment fee makes an unused line expensive and heavy usage cheap. A draw fee makes frequent small borrowing expensive and one large sustained draw cheap. They punish opposite behaviour. Choose the structure that matches how you will actually use the money — which means writing down your expected pattern of draws first, before anyone shows you a rate.

One more thing worth checking on an asset-based facility: you can be charged an unused-line fee on commitment you could never have drawn, because the borrowing base was the binding constraint all year. Ask whether the fee is calculated against the commitment or against available capacity.

Worked through

Illustrative. A 1,000,000 revolver charges 0.50 percent a year on the unused portion, plus interest on drawn balances.

You average 250,000 drawn across the year, so the average unused portion is 750,000. Unused-line fee: 750,000 × 0.005 = 3,750 for the year.

Take a 2,000,000 line instead with the same usage. Average unused: 1,750,000. Fee: 8,750 — an extra 5,000 a year for headroom you never touched.

Now express each as a cost of the money you actually used. On the smaller line, 3,750 ÷ 250,000 = 1.5 percentage points on top of the stated interest rate. On the larger one, 8,750 ÷ 250,000 = 3.5 points. Identical borrowing, identical interest rate, and the bigger facility costs two extra points on every dollar you used.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Working Capital Term Loan Business Line of Credit SBA Loan Asset-Based Lending

Read next

Borrowing baseThe pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that … Business line of credit (LOC)A facility you can draw on, repay and draw again up to a limit, paying for what you use rather than for the w… Closing costsEverything deducted or payable at funding beyond the financing cost itself, from origination and documentatio… Commitment letterA lender's written offer to fund on stated terms, subject to conditions, issued after credit approval and bef… DrawA request to take money from an approved facility, turning available credit into an outstanding balance. Draw feeA charge applied every time money comes off a line of credit, usually a percentage of the amount drawn, sitti… Fee scheduleThe exhibit listing every charge a facility can incur outside the headline rate: wires, lockbox, minimums, au… Line of credit (LOC)A facility allowing repeated borrowing up to a limit, where repaid principal becomes available again and inte… Revolving creditA facility you can draw, repay and redraw up to a limit, where cost applies to the outstanding balance and re… Utilization rateThe share of an available credit limit currently drawn, watched by lenders on a line of credit as an indicato…

Commitment fee — common questions

What does commitment fee mean?

A charge for the lender's promise to lend, calculated on money you have not borrowed — either up front on the whole facility or periodically on the undrawn portion.

Where does commitment fee catch people out?

An unused-line fee turns an idle facility into a running cost, and businesses take the biggest line offered because a bigger number feels like a stronger position. Work out the annual cost of the headroom before you accept it.

Is commitment fee the same as an interest rate?

Commitment fee is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does commitment fee apply to?

Working Capital, Term Loan, Business Line of Credit, SBA Loan, Asset-Based Lending.

Is there a worked example of commitment fee?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside commitment fee?

Borrowing base, Business line of credit, Closing costs, Commitment letter, Draw.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.