---
title: "What Is Commitment Fee?"
term: "Commitment Fee"
description: "A commitment fee is a charge paid to a lender or fund for reserving capital—compensating them for keeping funds available whether or not you draw them immediately."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/commitment-fee
---

# What Is Commitment Fee?

> A commitment fee is a charge paid to a lender or fund for reserving capital—compensating them for keeping funds available whether or not you draw them immediately.

**Commitment fee** is compensation for committed but undrawn capital—common on revolving credit lines, venture debt facilities, and some institutional capital arrangements.

## How it works

A bank commits to lend up to a cap; you pay interest only on drawn amounts plus a commitment fee on the unused portion—often quoted in basis points per annum on undrawn availability. Example pattern: draw what you need for runway, pay interest on outstanding balance, and pay a smaller fee on the remaining headroom so the lender holds capacity. Venture debt term sheets list commitment fees alongside interest rate, warrants, and covenants. In fund contexts, "commitment" language more often refers to LP pledges (committed capital) where management fees apply to committed amounts—not the same as bank commitment fees, but founders should not confuse the terms. Read each document for whether fees run on total commitment, invested capital, or undrawn balance.

## Why it matters

- **Founders:** Unused venture debt still costs money via commitment fees. Size facilities to realistic needs; renewing or upsizing triggers renegotiation.
- **Investors:** Credit-heavy cap structures shift cash flow to lenders; commitment fees reduce net runway versus headline facility size.
- **CFOs:** Cash forecasting must include undrawn fees and ticking clocks on availability periods.

## Common mistake

Signing the largest available credit line "for optionality" without modeling undrawn commitment fees across the full term—idle capacity is not free.

## Related ideas

Venture debt, subscription line, committed capital, interest rate, and covenant relate to commitment fee economics.

## FAQ

### What is a commitment fee in simple terms?

You pay a small periodic fee on undrawn committed capital so the bank or counterparty keeps liquidity available for when you need to borrow or call it.

### Why does a commitment fee matter?

It affects true cost of capital on venture debt and credit lines. Unused facilities still carry expense, which matters for burn and covenant planning.


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Source: https://venturecapitaltracker.com/glossary/commitment-fee