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Standby Fee

DEFINITION

Fee charged by a lender to a prospective borrower for providing a standby commitment. If the loan is not funded within the allotted time frame indicated on the standby commitment, the prospective borrower forfeits their right to the fee.

EXPLANATION

A standby fee is charged to an owner or developer when a lender has agreed to a standby commitment on a certain project that they have approved to fund.. If a loan that is given out has not concluded within the time-frame that was allotted  to the standby commitment, then the standby fee will be surrendered. An owner or developer is then allowed to determine if they want to pursue permanent financing, which will surrender the standby fee upon commitment, or stick with the original lender effectively saving the standby fee.

Example of Standby Fee

A developer or owner of a condominium structure may take a standby commitment that was offered by a lender. In the loan agreement, a standby fee was included in order to hold the developer to their end of the bargain. If the developer chooses to seek a permanent loan in order to fund their project and is able to find a better rate during the projects creation, then they are entitled to use this permanent loan. The agreement to use this permanent loan over the standby commitment is grounds for the original lender to take the standby fee, where if the developer stays true to the original standby commitment then the standby fee will not be renounced.

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