Identify the amount available for purchase or borrower distribution.
The amount printed on a loan commitment is not necessarily the amount available to pay a seller, retire an existing loan, or distribute to an owner. Some of the commitment may remain undrawn; funded money may pay fees or enter restricted accounts. Deposits paid before closing can also create credits that change the cash still due without changing total transaction cost.
A historical SEC-filed loan agreement, sections 2.02–2.03 and 4.05, separately addresses permitted uses, advances, and reserve disbursements. It illustrates why availability is document-specific. The original reconciliation below uses fictional amounts and is not an interpretation of that agreement.
Start with the funded amount at the relevant date
Record maximum commitment, initial advance, later advances, and conditions for each. A future renovation advance is not purchase cash merely because it is included in the headline loan. An earn-out requiring a future performance test should remain conditional until the requirement is satisfied and the lender’s obligation is established.
Next classify every closing deduction. Fees and third-party costs are different from tax escrows, repair reserves, and other restricted funds. Restricted money can remain an asset or satisfy later obligations, but it is unavailable for other uses until the applicable conditions permit release.
Identify the base of each percentage fee. A 1% fee on a $6 million commitment is $60,000 even if the initial funded balance is only $5 million. Do not assume the fee is calculated on the cash wired to the borrower.
Build the initial gross-to-net waterfall
Assume a fictional $6 million commitment, of which $1 million is reserved for future advances. The initial funded amount is $5 million. Closing deductions are a $60,000 origination fee, $40,000 of legal and closing costs, $100,000 of tax and insurance escrow, and $250,000 of funded repair reserve.
| Hypothetical opening reconciliation before prior-payment credits | Amount |
|---|---|
| Maximum commitment | $6,000,000 |
| Future undrawn advances | −$1,000,000 |
| Initial funded principal | $5,000,000 |
| Origination fee | −$60,000 |
| Legal and closing costs | −$40,000 |
| Tax and insurance escrow | −$100,000 |
| Funded repair reserve | −$250,000 |
| Available for immediate payoff or purchase | $4,550,000 |
If existing debt requires a $4.7 million payoff, this preliminary view shows a $150,000 borrower contribution. The $1 million future advance cannot be counted to fill that gap under the assumed restricted-use conditions.
The $450,000 difference between initial principal and usable funds is not all permanent expense. It includes $350,000 in restricted accounts. Keep a separate account schedule with opening balance, permitted use, release conditions, and expected payment dates.
Credit a prior deposit once
Now assume the borrower already paid a $75,000 deposit and the final settlement statement credits the entire amount against the $100,000 combined fee and legal-cost total. Only $25,000 of those costs remains payable at closing. Initial usable loan funds therefore rise from $4.55 million to $4.625 million, and new borrower cash needed for the $4.7 million payoff falls from $150,000 to $75,000.
Total borrower cash spent is still $150,000: $75,000 previously paid plus $75,000 now due. The credit changes timing, not total cost. If part of the deposit was consumed by a separate expense outside the modeled $100,000, revise the reconciliation rather than assuming the full deposit receives a credit.
| Total transaction conservation check | Amount |
|---|---|
| Initial funded loan | $5,000,000 |
| Borrower deposit previously paid | $75,000 |
| Additional borrower closing cash | $75,000 |
| Total sources | $5,150,000 |
| Existing debt payoff | $4,700,000 |
| Total modeled fees and legal costs | $100,000 |
| Tax/insurance escrow and repair reserve | $350,000 |
| Total uses | $5,150,000 |
This check catches a common error: subtracting the full fees from loan proceeds while also treating the prior deposit as a second additional cost, or adding the deposit credit twice.
Preserve negative results
If net funding is less than the payoff or purchase requirement, show a negative distribution or an explicit cash contribution. Do not label a zero distribution as “no cash needed.” Zero can conceal a substantial shortfall when a spreadsheet suppresses negative outputs.
Add current payoff evidence, including per-diem interest, applicable release costs, and any contractual premium. A balance from last month’s statement may not equal the amount required on the funding date. Record which estimates remain subject to a final closing statement.
Reconcile after closing without reclassifying reality
Compare the final wire, reserve opening statements, paid invoices, and payoff confirmation with the approved schedule. Explain differences and update post-closing liquidity. A larger reserve may reduce unrestricted cash without changing gross principal, while a smaller initial advance changes both funded debt and available cash.
Maintain the undrawn commitment ledger separately. Future funding increases debt when advanced under the actual terms; it should not be booked as both unrestricted opening cash and later construction funding. Likewise, a later reserve reimbursement is a release of previously restricted money, not a second loan origination.
The finished deliverable shows gross commitment, funded balance, unrestricted proceeds, total borrower contribution, and remaining conditional funds. That is the amount-level detail needed to decide whether a financing actually closes the transaction and leaves the owner with the liquidity the plan requires.
Sources and evidence
- SEC-filed Dean Member LLC mezzanine loan agreementSections 2.02 Use of Proceeds; 2.03 Loan Advances; 4.05 Reserve Disbursements · Checked 2026-10-21 · One historical agreement illustrates separate uses, advances and reserve conditions; it does not govern another transaction.
Source dates and applicability matter. Report an error or a changed source.