Loan Balancing

The test, in one line.

Undisbursed funds plus remaining borrower equity must be at least the cost to complete. The left side comes from the loan ledger. The right side comes from the budget and the field: what is left to build, at today's prices, including approved change orders and known overruns. A loan passes the test or it does not, and the administrator runs it before every disbursement, not once at closing.

Where the draw inspection fits.

The inspection supplies the field half of the equation. Each line item's percent complete tells the administrator how much of the budget is spent in work in place and how much is still ahead. A report that confirms less work than the request claims moves the cost to complete up and can tip the loan out of balance before the draw is funded, which is the point at which the lender still has options. What happens if a draw inspection shows less work than requested? covers the next step.

Why it matters for lenders.

A loan that goes out of balance late is funded by someone: the borrower, if they have the cash, or the lender, through an increase, an extension or a loss. Examiner guidance for construction and land development lending expects lenders to monitor the budget against work in place throughout the loan, and the OCC's Commercial Real Estate Lending handbook treats the cost-to-complete analysis as part of sound construction loan monitoring. The earlier the imbalance shows, the cheaper the cure.

How RAZE handles it.

RAZE reports percent complete by budget line item with photos tied to each line, so the administrator's balancing math rests on documented work in place rather than on the request. The balancing decision, and any cure, stays with the lender.