# Building a sources-and-uses schedule that balances

Canonical: https://chicagocommercialfunding.com/guides/building-a-sources-and-uses-schedule-that-balances/
Markdown: https://chicagocommercialfunding.com/guides/building-a-sources-and-uses-schedule-that-balances/index.md
Resource ID: building-a-sources-and-uses-schedule-that-balances
Published: 2026-10-21
Updated: 2026-10-21
Attribution: Chicago Commercial Funding Editorial
Topic: underwriting
Asset types: All commercial
Investment stage: Underwrite
Experience level: Intermediate

A sources-and-uses schedule reconciles every acquisition and initial business-plan cost with funded debt, equity, and other documented capital.

A sources-and-uses schedule is the transaction's funding proof: total identified capital must equal total acquisition, closing, improvement, and reserve requirements. The important test is not whether two totals happen to match. It is whether each source is available when its corresponding use must be paid and whether the model describes the full investment rather than only the purchase closing.

For a commercial investor, this schedule answers three questions: How much equity is required? What does the loan actually fund? How much cash remains available when the property needs work, leasing capital, or operating support?

## Separate closing from the complete business plan

A closing statement documents a particular settlement. A business-plan sources-and-uses schedule can cover a much longer period. Both are useful, but they should reconcile rather than share a misleading total.

An acquisition loan might fund at closing while a tenant-improvement facility funds only after qualifying work. An equity subscription may promise capital in installments. A seller credit might reduce closing cash without paying any post-closing contractor. Treating all these as immediately available cash can leave a buyer short despite a balanced annual spreadsheet.

Build at least three views: closing-day funds, committed but unfunded sources, and total expected business-plan funding. Show deadlines or conditions beside each material amount. A lender's term sheet is not funded cash, and an investor's verbal interest is not an equity contribution.

## A hypothetical acquisition that balances

Consider a small commercial building with a $3 million purchase price. The investor plans repairs, leasing work, and operating reserves. The following figures are illustrative assumptions.

| Uses | Amount |
|---|---:|
| Purchase price | $3,000,000 |
| Acquisition closing and diligence costs | $90,000 |
| Initial physical improvements | $240,000 |
| Tenant improvements and leasing commissions | $120,000 |
| Initial operating reserve | $100,000 |
| Construction and leasing contingency | $50,000 |
| Total uses | $3,600,000 |

| Sources | Amount |
|---|---:|
| Acquisition loan funded at closing | $1,950,000 |
| Future qualifying capital draws | $180,000 |
| Investor equity | $1,470,000 |
| Total sources | $3,600,000 |

The loan commitment totals $2,130,000, but only $1,950,000 funds the acquisition at closing. The loan-to-purchase-price ratio of the initial advance is 65%. The total committed debt divided by total uses is approximately 59.17%. Neither number means that 65% of every individual cost will be reimbursed.

Assume closing-day uses are the purchase price, $90,000 of transaction costs, the $100,000 operating reserve, and $50,000 contingency: $3,240,000. Against a $1,950,000 initial loan advance, closing equity is $1,290,000. Later physical and leasing costs total $360,000; future loan draws provide $180,000 and remaining equity supplies $180,000. Total equity still equals $1,470,000.

## Debt commitments require a draw schedule

A commitment is a ceiling under specified conditions. To understand usable money, record the initial advance, holdbacks, eligible costs, borrower equity requirement, draw evidence, inspection process, and timing. Distinguish a lender-funded capital reserve from a borrower-funded restricted account.

Suppose the borrower must pay $80,000 to a contractor before the lender reimburses $60,000. The eventual net equity requirement is $20,000, but the temporary cash requirement is $80,000. Without a timing schedule, the investor might subscribe the right total equity and still miss a payment.

The OCC handbook treats construction disbursement controls as a distinct lending issue. For the investor's model, the practical implication is to map actual release conditions rather than equate total commitment with cash on hand. [OCC construction lending and disbursement guidance](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf)

Do not assume a draw will arrive on the same day as the invoice. Model the administrative lag and ask the lender what happens to disputed work, change orders, retainage, and costs outside the approved budget. A funding gap can arise from timing even when every cost is eligible.

## Loan costs belong in the right place

Origination fees, legal expenses, appraisal costs, environmental reports, rate-lock expenses, and other transaction costs affect equity needs. The label “financed” does not make an expense disappear.

For example, if a $2 million gross advance includes a $20,000 lender fee deducted from proceeds, cash delivered is $1,980,000 before any other deductions. The schedule should show a $2 million debt source and $20,000 fee use, or a clearly explained net source. Do not use the $2 million source and also assume the buyer receives $2 million in the closing account.

Track prepaid interest and escrow deposits separately from recurring annual property expenses. A tax escrow deposit increases cash required at closing. It should not automatically become an additional property-tax expense in the NOI model. Link the escrow account to the later payment so the same bill is not funded twice in the business-plan cash flow.

## Seller credits are not unrestricted capital

A negotiated seller credit can reduce the buyer's settlement cash, subject to the contract and lender treatment. It generally does not establish that the buyer possesses a funded repair budget after closing. The economic interpretation depends on how the credit is implemented.

Imagine a $60,000 roof credit. If it simply reduces cash paid to the seller, the buyer's equity at closing may fall by $60,000. If the roof still costs $60,000, the project-level uses still include that expenditure. A buyer who spends the entire apparent saving elsewhere has not funded the roof.

Identify tax prorations, security deposits, prepaid rent, and repair credits individually. Security deposits can arrive with offsetting obligations to tenants. They should not be described as investor profit or permanent equity. Contract-specific accounting and legal treatment require review of the actual settlement documents.

## A contingency needs a purpose and funding source

A contingency is an allowance for uncertainty, not evidence that every risk is covered. Separate physical-scope contingency from leasing contingency and operating liquidity. A roof contingency cannot simultaneously fund a vacancy, an interest-rate increase, and an environmental issue unless the total cash is sufficient for all modeled events.

In the example, the $50,000 contingency is funded equity. If the project consumes $35,000, the remaining amount is $15,000. Update the schedule after each approved change. Do not preserve the original contingency balance while quietly moving costs outside the budget.

Show what happens if the contingency is exceeded. Is there committed additional equity? Can the scope be reduced without damaging the investment thesis? Is a supplementary loan permitted? A schedule that balances only by adding an unexplained “funding gap” line has identified a problem, not solved it.

## Connect the schedule to returns

The correct initial equity basis includes all investor contributions necessary to execute the plan. Calculate return metrics from dated equity flows rather than purchase-price equity alone.

If a buyer contributes $1,290,000 at closing and another $180,000 over the following year, a cash-on-cash figure based only on the original closing check can exaggerate performance. For IRR, record actual or modeled contribution dates. For an equity multiple, include every contribution in the denominator.

Cash borrowed later to reimburse equity changes the financing and the timing of distributions. It is not new operating income. Likewise, unspent contingency returned to owners is a return of available capital, not evidence that NOI improved.

Fannie Mae's NCF terminology illustrates another necessary separation: an operating cash-flow measure is different from transaction funding. Its definition explicitly addresses replacement reserves, while the sources-and-uses schedule tracks how the investment itself is capitalized. [Fannie Mae NCF definition](https://mfguide.fanniemae.com/fnmf-pdf/download/6626)

## Chicago acquisition considerations

Use current transaction-specific quotes and the correct jurisdiction when estimating transfer-related charges, recording costs, taxes, and municipal requirements. Chicago, suburban Cook County, and other metropolitan counties should not share an unverified universal closing-cost assumption.

For an older commercial building, connect inspection findings to costed scope. An allowance for a new roof should identify whether structural repair, rooftop equipment handling, permits, and tenant disruption are included. A number taken from a seller's marketing package is not a contractor commitment.

Allow adequate time for insurance binding and lender-required reports. Paying for reports before an investment decision is often an at-risk diligence cost. Track sunk diligence costs separately when comparing whether to proceed; including them in total deal profitability is appropriate, while letting them force a bad closing decision is not.

## Final funding audit

Before closing, reconcile the acquisition model, loan commitment, draw budget, equity subscriptions, and draft settlement statement. Trace each major use to its invoice, estimate, or contractual basis. Trace each source to its funded account or binding condition. Confirm who controls reserve accounts and when money can move.

Provide a simple reconciliation page to prospective financing partners. Jaken's asset-class overview is a starting point for discussing the financing category; the actual sources and release conditions must come from the proposed transaction documents. [Jaken commercial financing overview](https://jakenfinancegroup.com/commercial-property-loans-by-asset-class/)

After closing, convert the acquisition schedule into a funding dashboard. Record actual costs beside budget, remaining committed debt, equity contributed to date, and cash still available. A static closing workbook loses usefulness as soon as the first invoice differs from plan. The ongoing rollforward makes the original funding assumptions testable.

A sound schedule balances by amount, timing, and legal availability. If any of those three fail, revise the capital plan before treating the acquisition as funded.


The cited Fannie Mae glossary is the version effective April 30, 2026; its terminology is program-specific and should be reconciled with the applicable product and current loan documents.

## Source registry

- [OCC — Commercial Real Estate Lending handbook](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf): accessed 2026-10-21
- [Fannie Mae — Net Cash Flow glossary, effective April 30, 2026](https://mfguide.fanniemae.com/fnmf-pdf/download/6626): accessed 2026-10-21
- [Jaken Finance Group — Commercial property financing by asset class](https://jakenfinancegroup.com/commercial-property-loans-by-asset-class/): accessed 2026-10-21

## Related resources

- [Commercial underwriting from rent roll to investment return](https://chicagocommercialfunding.com/learn/underwriting/)
- [Building a lease-by-lease commercial cash-flow model](https://chicagocommercialfunding.com/guides/building-a-lease-by-lease-commercial-cash-flow-model/)
- [Calculating cash-on-cash returns with a realistic equity basis](https://chicagocommercialfunding.com/guides/calculating-cash-on-cash-returns-with-a-realistic-equity-basis/)