New Construction: Financing, Sources & Uses

Construction financing in DealWorthIt is deliberately explicit: one senior construction loan (or none), a funding order that runs exactly as declared, and a sources-and-uses statement where nothing is inferred. A cost no permitted source could pay is reported as unfunded — never quietly absorbed.

One loan, or all-equity

The model supports exactly two states: a single senior construction loan, or an all-equity project. There's no mezzanine slot, no second lien. And the loan isn't sized for you — the loan commitment is typed, and it's a ceiling on what may be advanced, never an amount that is advanced: draws fund eligible budget lines in the declared funding order until the commitment, the LTC cap or the borrowing base stops them.

How interest works

• Interest accrues each month on the loan's opening drawn balance — a draw made this month starts accruing next month, and the undrawn commitment carries no interest (there's no commitment or unused-facility fee).
• The rate is fixed or a floating monthly schedule of annual rates you declare — no index, spread, floor or cap machinery.
• Interest paid from is a required choice: capitalized onto the balance, paid in cash from equity, or funded by the loan. What it never is: paid out of operating income.
• An interest reserve is a slice earmarked inside the commitment to meet interest — it adds no capital and can't exceed the commitment.
• There's no amortization or interest-only input, because a construction loan here accrues rather than amortizes — which is also why no DSCR appears on a construction analysis: there's no period debt service to cover.

Fees are declared, not derived: an origination fee (a rate on the commitment, due at first draw or a month you pick, funded by equity or the stack), plus optional extension and exit fees. The maturity is a month index; the loan must be off the books by maturity (plus any declared extension) or the calculation reports "the loan is still outstanding at maturity" as a blocking problem.

The funding order

Each month, uses are funded in a fixed order, and each row only by the sources it's allowed:

• Equity-only budget lines — funded by equity, never by a loan draw, even with commitment headroom remaining.
• Financing fees, then ordinary construction costs — the draw order you chose applies here: Equity first (the default) or Pro rata with a declared loan share.
• Interest — the reserve first, then equity; the loan itself may advance interest only when you chose "funded by the loan."
• Operating deficits — from the equity earmark and equity pools, never from loan proceeds.

The advanced Max LTC covenant caps each month's advance at a share of the cumulative borrowing base — the budget lines you ticked as eligible. It limits draws; it isn't a test the loan can fail.

Sources & uses — and what "fundable" means

The analysis panel's Sources & uses group is the reconciliation: equity funded, debt funded, total sources against total uses, the funding deficit, and each side's share. The report's Sources & Uses section presents the same statement, with amounts a source made available and amounts it actually funded labeled apart throughout.

Fundable means every use is covered: the calculation is fundable when actual funded sources equal total uses with zero deficit. When they don't, the verdict says "this project cannot be fully funded as entered" — the calculation still ran to the end, the full monthly ledger is there to inspect, and the funding-gap group itemizes what went unpaid (costs, interest, fees, operating deficit). The fix is the honest one: more equity or loan capacity, wider eligible uses for the additional equity, or a smaller budget.

Common questions

• "Why didn't the loan cover that cost?" — Three suspects, in order: the line is marked equity-only; the commitment or LTC cap was exhausted that month; or the cost sits in a waterfall row the loan isn't permitted to fund (operating deficits never draw).
• "Where do I set LTV or debt yield?" — Nowhere: the commitment is declared, not solved from a ratio. Size the loan in your own terms and let the ledger show whether it closes.
• "Interest looks too low early on." — It's accruing on the drawn balance, not the commitment — early months with small draws carry small interest, and a draw's interest starts the month after the draw.