Increase in commitments: Overview, definition, and example
What is an increase in commitments?
An increase in commitments refers to a contractual provision that allows one or more parties to increase their financial, service, or performance obligations under an agreement. This is commonly used in financing agreements, service contracts, and business arrangements where additional resources or funding may be required over time.
For example, in a loan agreement, a borrower may request an increase in the credit facility, subject to the lender’s approval, allowing them to access additional funds under the same loan terms.
Why is an increase in commitments important?
An increase in commitments is important because it provides flexibility for businesses and financial institutions to scale obligations based on changing needs. It allows parties to adjust financial or service commitments without renegotiating the entire contract.
For lenders, suppliers, or service providers, this provision ensures that any increase in commitments is subject to approval, preventing unexpected obligations. For borrowers and clients, it provides a structured way to access additional funding or services when necessary.
Understanding an increase in commitments through an example
A company secures a revolving credit facility with a bank for $5 million. The loan agreement includes an increase in commitments clause, allowing the company to request an increase of up to $2 million if needed. The bank reviews the request and approves the increase, bringing the total available credit to $7 million.
In another case, a software development firm signs a service contract with a client for ongoing IT support. The contract includes an increase in commitments clause stating that if the client requires additional support hours, the firm can allocate extra resources at a pre-agreed hourly rate, ensuring scalability without requiring a new contract.
Example of an increase in commitments clause
Here’s how an increase in commitments clause might appear in a contract:
“Subject to the approval of the Lender, the Borrower may request an increase in the total commitment amount by up to [X] percent. Any such increase shall be documented in a written amendment to this Agreement and shall not take effect until executed by all parties.”
Conclusion
An increase in commitments clause provides a structured way to expand financial or service obligations within an existing contract. It offers flexibility for borrowers, clients, and service providers while ensuring that increases are subject to approval and clearly documented. Including this provision in agreements helps businesses adapt to changing needs without requiring a complete contract renegotiation.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.