Separate commitment, advances and available cash
A commitment is the total facility contemplated by the agreement. An advance is money funded under that agreement. The two amounts need not be the same on closing day. If a hypothetical $1.8 million commitment begins with a $300,000 advance, $1.5 million remains undrawn before any later activity. That remaining amount is not automatically available to spend immediately.
Ask what must happen before each advance, who submits the request, and how long review and payment could take. Maintain a project calendar with invoice dates, draw submissions, inspections and expected disbursements. A contractor’s payment deadline and the lender’s draw review are separate events.
Make the draw request easy to reconcile
A useful request connects each claimed expense to a budget line and an evidence item. Keep the original budget, approved changes, previously funded amounts, current request and remaining cost to finish visible together. The NCUA construction guide describes draw reconciliation, inspection and final-funding controls for credit unions. Your transaction’s documents determine the actual requirements.
An inspection can support the funding review, but it does not replace your own accounting or guarantee construction quality. Ask how stored materials, deposits, disputed invoices and retainage will be handled. Retainage is an amount held back under the applicable arrangement; use the negotiated amount rather than assuming a universal percentage.
Estimate interest on a visible schedule
The estimator uses a simple monthly convention: opening principal plus half of that month’s advance, multiplied by the annual rate divided by twelve. It assumes each advance occurs halfway through the month. For a $300,000 opening balance, a $100,000 advance and a 10% annual rate, estimated interest is $2,916.67 for that month.
The following month opens at $400,000 because this model treats interest as paid separately. It does not add interest to principal. Enter each month’s advance directly, including zero for a month without funding. The tool checks that total principal advances do not exceed the entered commitment. Its chart shows the modeled funded balance over time.
Actual loan calculations can use specific funding dates, day-count conventions, changing rates, additional fees and financed interest. If interest is advanced from the loan, those advances can consume commitment and affect future interest. This simplified model does not solve that circular calculation. Its separate reserve input is only an amount available to cover modeled interest, not extra funding added to the loan.
Give delays a dollar amount
The delay scenario holds the completed base schedule’s ending principal constant for the added months, with no new draws or principal repayments. At $1.5 million and 10% annual interest, three added months create $37,500 of extra interest. If other carrying costs are $2,500 per month, the combined incremental burden is $45,000.
Those are arithmetic assumptions, not an extension quote. The scenario excludes extension fees and does not establish a right to extend. Compare the delayed payoff date with the actual maturity date, then ask what happens if they no longer align.
Reconcile the interest allowance
The OCC commercial real estate handbook explains that reserves must be evaluated against disbursement timing, interest rates and completion or lease-up assumptions. Use the tool’s base and delayed results to revisit your allowance. If modeled interest exceeds the entered reserve, identify the cash shortfall explicitly. A remaining reserve balance is not evidence that the overall construction budget is adequate.