In brief
Build construction funding monthly, linking eligible spending to loan draws, interest, fees and equity contributions. Separate committed financing from cash actually available and model retainage, draw delays and contingency use. Peak equity is the largest cumulative funding gap, not total project cost less headline debt. Stress the schedule and cost overruns before calculating distributions or relying on an attractive projected exit value.
Key takeaways
- Build construction funding monthly, linking eligible spending to loan draws, interest, fees and equity contributions.
- Reconcile the inputs to source records and make assumptions explicit.
- Use the result to frame questions, not as an assurance conclusion.
Build a monthly sources-and-uses schedule
Separate land, hard costs, soft costs, interest, fees, contingency and reserves. Model loan eligibility and the lender’s draw process. A committed loan is not immediately available cash. Equity-first funding, retainage and reimbursement delays can increase cash needed before the next advance.
Illustrative worked example
A $100,000 eligible invoice with 70% financing still requires equity for the unfinanced $30,000 and possibly the full payment while reimbursement is pending.
Link interest to funded debt
Calculate interest on the appropriate debt balance and timing convention. Include financing fees and interest reserve limits without counting reserve funding as revenue. Distinguish cash-pay interest from capitalized interest and test whether each is eligible under the facility.
Illustrative worked example
A $1 million average monthly balance at a 12% annual rate incurs approximately $10,000 monthly interest under a simple annual-rate divided-by-twelve convention.
Stress delays before reporting returns
Test construction overruns, slower lease-up and draw delays. Track peak equity, debt maturity, reserve use and any required refinancing. Apply distribution restrictions before sending cash to the waterfall. A favorable exit cannot fund an earlier cash shortfall unless bridge financing is available.
Illustrative worked example
A three-month delay adds carrying costs and defers exit proceeds; both the extra equity requirement and the lower dated investor return should appear in the model.
Frequently asked questions
Educational content — not an audit, assurance opinion, or investment or legal advice.
