Unfunded loan commitments
From Wikipedia, the free encyclopedia
Unfunded loan commitments are those commitments made by a Financial institution that are contractual obligations for future funding. They should not be confused with Letters of credit which require certain trigger events before funding is needed.
Typically, unfunded commitments are separated into two categories:
- Multiple Advance, Closed End: These loans (typically construction loans) advance incremental amounts up to a certain limit. Any principal reductions received during the loan period are not available to be drawn on.
- Revolving or Open End: These loans (known informally as Lines of Credit) allow the borrower to continue to borrow up to the original loan amount. Principal reductions are immediately available for future advances.
Banks are required to report unfunded commitments on schedule RC-L of the Quarterly Report of Condition and Income (Call Report).
