A commitment letter is the formal letter which is issued by the lending authorities in order to inform the loan applicant about the terms and conditions about getting the loan credit. The status of the commitment letter is made equal by the authorities as being the legal and formal documents.
Specifications of commitment letter
There are some specific specifications of the commitment letter. Usually the main contents of the commitment letter include the terms and conditions involved which are to e considered and discussed during the procedure of making loan commitment. All these considerations are specified already in the letter. There is a specific purpose of a commitment letter. Mainly it is meant for informing the borrower about the approval or otherwise of the loan which was applied previously.
Commitment letter as a cover letter
In some parts of the world, commitment letter is also considered as the cover letter. In these cases it serves as the offer letter for the advance loan in some countries. This is therefore the advance of actual contract. This contract is going to be signed by both the lender and the borrower. The format of commitment letter remains more or less the same in different parts of the world. Sometimes, it is included in the formal agreement of the letter.
Text of commitment letter
The main text of the commitment letter includes the details from the side of lender and debtor which are important from the point of view of applicant’s study. This text also includes the details of the loan which is being taken by the debtor from the lender. Along with the total amount loan included by the lender, the breakdown time and amount of interest according the determined interest rate is also included. Usually the paying off of the debt is done in installments which are also included in the commitment letter.
In addition to this, the commitment letter also includes the description on the matters like penalties which are applied in necessary conditions. In case of the loan paid off, the penalties are also applied in commitment letter additionally.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
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Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
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- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Break-even Point
- Debt Service Coverage Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
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