Best Efforts And Other Undertakings: What Do They Mean?

In many financing transactions, the day of closing arrives and it becomes clear that certain documents are not yet available or certain conditions precedent have not yet been satisfied. Whereas in many cases, the lender might simply delay funding until all conditions have been met, often neither the lender nor the borrower have control over the closing date. For example, when a borrower is using loan proceeds to complete a purchase transaction, the agreement of purchase and sale will govern the closing date and the seller may not be willing to grant an extension and the borrower could lose the deal.

In situations like this, a borrower may offer a post-closing undertaking to bridge the gap for some unavailable deliveries so that the scheduled closing date can be met. While lenders may not be keen on the idea, especially considering they lose much of their leverage when the advance is made, undertakings are often the compromise that gets everyone over the finish line.