1. Add the uses
List acquisition or payoff costs, construction or renovation, closing expenses, required reserves and other project costs. Show timing as well as totals.
2. Estimate senior loan proceeds
Use lender indications or clearly labeled assumptions for debt service coverage, loan-to-value, loan-to-cost and debt yield. The most restrictive applicable test may limit proceeds. Use the loan calculator for an illustrative comparison.
3. Identify the sponsor contribution and gap
Subtract the proposed loan and available sponsor contribution from total uses. Show the remaining gap explicitly. Avoid treating an uncommitted source of funds as available cash.
4. Test additional debt carefully
If considering mezzanine or seller financing, confirm senior-lender permission and model total debt service, fees and repayment. Additional debt does not solve a project whose cash flow cannot support the obligations.
5. Test delays and lower proceeds
Model slower leasing, higher costs, delayed completion and a less favorable refinance or sale. Keep assumptions defensible; do not change an exit value simply to reach a target return.
Related resources
A worked financing-gap example
Consider an acquisition with $10 million of purchase costs, $1 million of improvements and $500,000 of closing costs and reserves. Total uses are $11.5 million. If a proposed loan provides $7.5 million and the sponsor has $3 million available, the initial funding gap is $1 million.
Now separate the loan’s initial advance from future funding. If $1 million of the loan is available only after improvements are completed, the sponsor also needs a plan for paying those costs before reimbursement. A balanced total sources-and-uses statement does not by itself prove that cash is available on each required date.
Review the result before relying on it
Check that each source is supported by available cash, a lender indication or a clearly labeled assumption. Record the conditions and timing for its use. Include financing fees, reserves and any interest that will be funded rather than paid from operations.
Then rerun the worksheet with a higher budget or lower loan proceeds. This shows which change creates a cash requirement and how much flexibility remains. Use the sources-and-uses builder to organize the figures and the loan calculator to explore stated borrowing assumptions.
Discuss your property financing or explore sponsor consulting.