Sources and Uses

Sources and Uses: What the Market Actually Requires

Lenders read the sources and uses table as a solvency proof and an honesty test. The immediate math is loan-to-cost: the senior loan divided by total uses, with most bridge and construction lenders capping somewhere between 60% and 80% depending on asset and business plan. The subtler review is of the equity line. Banks generally require equity to be cash, funded first, before the first loan dollar advances on a construction deal. Land contributed at appraised value rather than actual cost, deferred developer fees counted as equity, and sponsor 'imputed' value are all negotiable at debt funds but haircut or rejected at banks; a capital stack that pencils at one shop fails at another on the same numbers.

The uses side rewards completeness. Credible tables include acquisition or land cost, hard costs with a contingency (5% to 10% is conventional), soft costs, financing fees, carry through the interest reserve, operating shortfall reserves during lease-up, and working capital. The most common borrower mistakes are omitting carry and contingency to make the equity requirement look smaller, double-counting the interest reserve as both a source and a use, and building circular tables where the loan amount depends on total cost while total cost includes fees calculated on the loan amount; underwriters solve that circularity daily and notice when a sponsor could not.

On layered deals, the sources side is the capital stack in table form: senior loan, then mezzanine or preferred equity, then common equity, each with its own cost and priority. Senior lenders will require intercreditor terms for anything sitting between their loan and the common equity, so a sources line item is also a structuring commitment, not just a number.

Why It Matters for Your Loan

The sources and uses table determines the real equity check you must write, and whether a lender believes your budget. An incomplete uses column comes back as a proceeds cut or a mid-project capital call, the most expensive money in real estate. How each capital source treats non-cash equity, land lift, and deferred fees can swing the required cash by seven figures on the same deal, so matching the stack to the lender's conventions is a structuring decision, not paperwork. Commercial Lending Solutions builds the table to each target lender's definitions before submission.