A firm commitment by a lender (e.g., a bank) to provide credit (loan) under pre-specified terms and conditions. It is manifested by a formal letter from the lender stating that the loan applicant (whether an institution or an individual) has been found to be qualified for a loan. By virtue of a such communication, the lender promises to extend a specific amount of credit (money) to the applicant.

For institutions, loan commitments come in the form of short term credit lines that can be withdrawn from the maximum amount committed by a lender,, at a certain cost, typically above the cost (interest rate) associated with long term credit. Such credit lines help entities to finance short term financial needs. Moreover, credit lines provide a buffer against unexpected short term shortfalls and may also allow institutional borrowers to avail investment opportunities that may come up time to time.