A loan fee deducted at closing changes how much cash you receive

If the company needs $500,000 to complete a purchase, a $500,000 loan approval may leave a shortfall once closing deductions are taken. Write the required usable proceeds first. Then bridge gross debt to the bank receipt and onward payments. This puts the financing comparison on the same funding objective.

Ask which fees are withheld, paid from existing cash or added to the principal. Identify third-party expenses and any amount held in reserve. A fee described as financed can still be deducted from a larger gross advance, while a charge paid separately consumes company cash even though the loan deposit looks complete.

In a hypothetical offer, a lender deducts an origination fee equal to 3% of gross principal. A $500,000 note therefore produces $485,000 before other charges. To receive $500,000 under that same rule, gross principal must be $500,000 divided by 0.97, approximately $515,463.92. The corresponding fee is approximately $15,463.92.

Simply adding $15,000 gives principal of $515,000, but a 3% deduction from that larger amount is $15,450. Net proceeds would be $499,550, still $450 short. If the lender instead agrees a fixed $15,000 fee added to a $500,000 advance, the calculation is different. Obtain written confirmation of the fee base rather than choosing the interpretation that makes the spreadsheet balance.

Where the agreement charges interest on the full principal, increasing debt to cover a fee also increases interest and principal payments. Use the revised note amount in the repayment model. Do not calculate debt service on the net bank deposit merely because that is the amount available for the project.

For a deliberately simple one-year interest-only illustration at 10%, $500,000 of principal incurs $50,000 interest. Principal of $515,463.92 incurs approximately $51,546.39, before repaying principal at year-end. The extra borrowing preserves cash at closing but adds approximately $1,546.39 of interest in this example. Actual schedules, compounding and charges can differ.

Compare offers using the same usable proceeds and completion date. If one offer requires the company to supply the fee from cash, include that contribution on day one. A dated cash-flow comparison can then show both the initial demand and later burden without treating a financed charge as free.

Ask the lender to identify each charge and its contractual basis. Program rules can distinguish fees that may be passed through from those that cannot. For example, SBA guidance permits passing its 7(a) upfront guaranty fee to the borrower but says the lender's annual service fee cannot be charged to the borrower. Those are program-specific rules, not permission for every proposed origination charge.

Have the relevant adviser check restrictions for the actual loan and jurisdiction. Clarify whether an application deposit is credited at closing, retained if the deal fails or refundable under stated conditions. Keep a refund assumption out of the funding plan until its basis is established.

Require one schedule showing gross borrowing, every deduction, company contributions, usable proceeds and opening principal. Reconcile it to the lender's final closing statement before committing downstream payments. A last-minute legal bill or reserve can change whether the purchase is fully funded.

Retain the commercial comparison for the decision and send the executed documents to accounting for treatment under the applicable framework. The amount of usable cash, the amount owed and the timing of expense recognition are separate questions; the closing approval must make the first two unambiguous.