What is the term for a financial institution's commitment to lend a specified maximum amount to a company?

A financial institution's commitment to lend a specified maximum amount to a company is referred to as a Line of Credit. This arrangement allows the borrower to access funds up to a predetermined limit as needed, providing flexibility in managing cash flow and financing requirements. The line of credit is designed to be utilized for short-term borrowing needs, where the borrower can withdraw, repay, and re-borrow funds as necessary within the agreed-upon limit and time frame.

In contrast, a loan agreement typically outlines the terms of a specific loan, including repayment schedules and interest rates, but it does not inherently provide the flexibility of borrowing up to a maximum amount on an ongoing basis. A credit facility can be a broader term that may encompass various types of borrowing arrangements, but it does not specifically indicate the ongoing nature of lending typical of a line of credit. Lastly, a term loan is a type of loan with a fixed repayment schedule that is not meant for revolving access to funds. Understanding these distinctions highlights why a line of credit is the most fitting term for this particular financial commitment.