The same commitment can fund different closing cash and incur different interest costs. Compare disbursement timing and restrictions before ranking loan amounts or note rates.
Two $4 million loan commitments can produce different closing wires, equity requirements and first-year costs. One lender may fund the entire balance and restrict part of the cash. Another may leave part undrawn until work is completed. A commitment is a funding limit under stated conditions; it is not necessarily a deposit available for every project use on day one.
Ask for a disbursement schedule as well as a term sheet. It should show initial principal funded, fees paid from that advance, cash deposited in controlled accounts, future advances and the conditions for release. Each item belongs in the financing comparison because it changes when the sponsor can use the money.
Four balances that should not be combined
Committed principal is the maximum contractual facility amount, subject to its conditions. Funded principal is the balance actually advanced and potentially accruing interest under the agreement. Restricted cash has been funded but is controlled or reserved for specified uses. Usable proceeds are the money available for the immediate transaction after relevant deductions.
The distinctions appear in real documents. Section 2.10.1 of a publicly filed Block 40 agreement conditions additional advances on notices and other requirements. That negotiated agreement is an example of why future availability needs inspection; it does not establish the conditions for either hypothetical offer below.
Worked comparison at closing
Assume both offers have a $4 million commitment. Offer A funds the full amount immediately, charges 2% of commitment as its origination fee and places $300,000 in a restricted project account. Offer B initially funds $3.7 million, reserves $300,000 for a future advance and charges 1% of the initial advance. All fees shown are paid from loan proceeds.
| Closing item | Offer A | Offer B |
|---|---|---|
| Total commitment | $4,000,000 | $4,000,000 |
| Initial funded principal | $4,000,000 | $3,700,000 |
| Origination fee | −$80,000 | −$37,000 |
| Restricted cash funded at closing | −$300,000 | $0 |
| Usable closing proceeds | $3,620,000 | $3,663,000 |
| Undrawn commitment | $0 | $300,000 |
Offer B provides $43,000 more usable closing cash despite funding $300,000 less principal. Offer A’s restricted account remains an asset of the transaction, subject to control and release terms. Offer B’s undrawn commitment is a conditional funding source. Neither is unrestricted cash for the seller’s closing wire.
If immediate acquisition and other closing uses total $5 million, the sponsor must supply $1.38 million under A or $1.337 million under B. Do not add the $300,000 restricted account as another closing use after subtracting it here unless the full sources-and-uses method also restores the gross funded loan. Mixing gross and net presentation double counts the reserve.
Compare the first year using the actual advance schedule
Assume A charges 9% interest-only on the full $4 million for a year. B charges 10% interest-only; the remaining $300,000 is advanced exactly halfway through the year. For simplicity use equal six-month periods, no daily accrual adjustments, no reserve interest earnings and no other fees.
| Modeled first-year cost | Offer A | Offer B |
|---|---|---|
| First six months interest | $180,000 | $185,000 |
| Second six months interest | $180,000 | $200,000 |
| Total interest | $360,000 | $385,000 |
| Origination fee | $80,000 | $37,000 |
| Interest plus origination | $440,000 | $422,000 |
B’s higher coupon produces $25,000 more interest, but its lower fee makes the listed first-year costs $18,000 lower. This is a specified cash-cost comparison, not APR and not a complete ranking. Unused-line fees, draw fees, minimum interest, extension fees, exit fees and prepayment obligations could change it.
Timing changes the answer. If B’s full balance is drawn earlier, more interest accrues at its higher rate. If the work never occurs, the future advance may never be funded. A valid comparison must use the sponsor’s actual business plan rather than an arbitrary holding period selected to make one loan appear cheaper.
Examine release conditions and temporary funding needs
Find out whether the lender funds work in advance, reimburses paid invoices or pays contractors through a controlled process. Identify inspections, lien releases, budget requirements and minimum request sizes. These are transaction questions; do not assume the historical contract cited above supplies the answer.
Suppose a $100,000 contractor payment precedes a reimbursement by several weeks. A balanced total project budget can still require $100,000 of temporary sponsor liquidity. The issue is timing, not another permanent project cost. Show the maximum temporary cash requirement separately from total equity invested.
Review who bears overrun risk and how unused allocations are treated. A reserve left after completion may require a principal paydown, remain restricted or be released under specified conditions. It should not be assumed to become a sponsor distribution.
Ask for a comparable final schedule
Before choosing, have each lender confirm the definitions in the table, the fee base, the interest-bearing balance, the advance calendar and all material exclusions. Keep underwriting assumptions identical where possible; identify where each proposal differs.
Then compare recourse, covenants, maturity and exit flexibility alongside cash. The cheapest modeled first year may be inappropriate if it requires a refinance before the property can qualify. The strongest comparison explains which offer meets the sponsor’s funding schedule and why, with enough detail for someone else to reproduce the conclusion.
Sources and evidence
- SEC-filed Block 40 loan agreement dated June 1, 20222.10.1 Advance Conditions · Checked 2026-10-21 · Historical example of conditional future advances; the hypothetical offers below are original and unrelated.
Source dates and applicability matter. Report an error or a changed source.