Reading your commitment letter: a walkthrough
The approval call is a great moment. What arrives a few days later is not a cheque — it's a commitment letter, several pages of terms you're asked to sign and return. I watched owners sign these in the parking lot without reading page two. It's an offer, not a formality, and here's how to read it section by section.
First: it's an offer, and offers expire
A commitment letter is the lender saying "we will lend on these terms if you accept and meet the conditions." Somewhere near the end is an acceptance deadline — often measured in weeks — after which the offer lapses and may need re-approval. Note that date first. It sets your timeline for everything else, including asking questions, which you are absolutely allowed to do.
The facilities section: what you're actually getting
Each loan is described as a "facility": amount, purpose, interest rate (fixed, or floating over the lender's prime rate), repayment schedule, and — read carefully here — the term versus the amortization. A loan amortized over ten years but committed for five means the payments are calculated over ten, but in year five you're renewing on whatever terms exist then. Owners who miss that distinction are surprised twice: once now, once at renewal. While you're here, check the payment figure against your own cash-flow forecast — it should match what your plan modelled, and if it doesn't, find out why before you sign anything.
Conditions precedent: what happens before any money moves
Usually a list titled "conditions precedent to funding" — the items that must be done before a dollar is advanced. Signed security documents, proof of insurance naming the lender, confirmation your own equity injection has gone in first, sometimes an appraisal or an accountant-prepared statement. This list is your to-do list, and it's the most common reason funding takes longer than owners expect. Start on it the day you sign — insurance especially, since commercial policies take longer to bind than owners think, and funding waits for the certificate.
The commitment letter is the only document I ever saw owners sign faster than a birthday card — and it's the one that governs the relationship for years.
The security section: what you're pledging
Expect a general security agreement over business assets, specific charges on anything the loan buys, and in most owner-managed businesses, a personal guarantee. Read the guarantee's amount: is it limited to a figure, or unlimited? Joint with a co-owner, or several? This section is where the loan reaches into your personal balance sheet, and it deserves the slowest read of all — ideally with your lawyer, which for larger facilities the lender will expect anyway.
Covenants and reporting: the ongoing rules
Most commitment letters carry conditions that live on after funding — financial ratios to maintain, statements to deliver annually, things you can't do without consent. These deserve their own article, but at the letter-reading stage the question is simple: can your business, as projected in your own plan, meet each one comfortably? If a required ratio is tighter than your own forecast, say so now, not at your first year-end.
Fees, and the question of negotiating
Application or setup fees, annual review fees, legal and appraisal costs — typically yours. All of it is worth reading; some of it is worth a conversation. Terms are more movable before you sign than they will ever be again, and a specific, reasonable request ("can the guarantee be limited to the loan amount?") is a normal part of the process, not an affront. The lender wrote you an offer. Read it like one.
Know what's coming before the letter does
The pre-application review puts a real Canadian commercial banker on your full package before you submit — what's working, what to fix, and what terms your file is likely to draw. $249, 48-hour turnaround, ten accepted per month.
Get a banker's read firstLenderReady is an educational service, not a lender, broker, or financial advisor. Lending criteria vary by institution and change over time; treat this as a starting point, not a guarantee.