Can a lender walk away from a signed commitment letter before the loan actually funds?
Often yes, and this comes down to how conditional the specific commitment letter actually is, rather than any general rule that a signed commitment letter always guarantees the funds will flow. Commitment letters are typically drafted with a series of conditions precedent that must still be satisfied before the loan actually funds, such as satisfactory completion of due diligence, no material adverse change in the target business, updated or confirmed financial information, and execution of definitive loan documentation on terms acceptable to the lender.
A buyer who treats a signed commitment letter as an unconditional guarantee of financing can be caught off guard if one of these conditions is not met to the lender's satisfaction, since the letter itself usually gives the lender real latitude to decline funding, or to require changes, in that situation. Before relying on a commitment letter to finalize timing with a seller, a buyer should look closely at exactly which conditions remain outstanding and how much discretion the lender has retained over satisfying them.
Key takeaways
- A commitment letter's conditions precedent, not the signature alone, control the outcome.
- Common conditions include diligence results, no material adverse change, and final documentation.
- These conditions can give the lender real discretion to decline funding.
- Confirm what conditions remain outstanding before relying on the letter's timing.