What is a Firm Commitment?

An underwriter’s agreement to bear all inventory risk and acquire all securities for an initial public offering (IPO) straight from the issuer for sale to the public is known as a firm commitment in finance. It’s also known as a “purchased deal” or “strong commitment underwriting.” A lending institution’s pledge to enter into a loan arrangement with a borrower within a specific time frame is often referred to as a timeframe. The firm commitment phrase is also used in the accounting and reporting of derivatives utilized for hedging purposes.