Firm Commitment
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 Commentary
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 as a dealer 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."
See also: Best Efforts, Bought Deal, Committed Facility, Competitive Bid, Dealer, IPO, Negotiated Underwriting, Standby Underwriting, Underwriting
firm commitment