Multi-Disbursement Loans and Timing of Proceeds
Many borrowers focus on the total approved loan amount when planning how funds will be used. However, the approved amount does not always reflect how or when proceeds will be disbursed.
Depending on the use of proceeds, some SBA 7(a) loans are structured as multi-disbursement facilities, meaning a portion of funds will be released over time rather than in a single wire at closing.
This structure can affect how liquidity is accessed and how certain business expenses are funded, particularly during the initial stages of the loan.
Loan Disbursement Structure Depends on Use of Proceeds
The way loan proceeds are disbursed is often influenced by how the funds are intended to be used. Certain expense categories involve timing considerations or documentation requirements that affect when funds are released.
As a result, different components of the same loan will be disbursed at different times, even though the total approved amount does not change.
Common Uses of Proceeds Disbursed Over Time |
Certain categories of expenses are more commonly associated with controlled disbursements. Below are examples of uses of proceeds that will be disbursed over time rather than fully funded at closing.
Construction or buildout costs
Equipment purchases
Furniture and fixtures
Portions of working capital
Technology or software implementation
My View From the Deal Desk |
Borrowers May Not Receive Funds Directly
The way proceeds are structured can directly affect how funds are accessed. When loan proceeds are allocated to specific uses such as equipment, furniture, or construction, lenders typically require supporting documentation, and funds are often disbursed directly to the vendor via wire rather than to the borrower. This means the borrower does not receive those funds as cash, even though they are included in the total approved loan amount.
This can create a disconnect between expectations and how funds are ultimately delivered.
Working Capital Allocations Receive Additional Scrutiny
Working capital is often viewed as the most flexible use of proceeds because it is disbursed as cash to the borrower. As a result, borrowers may assume allocating a larger portion of the loan to working capital will provide more direct access to cash.
However, because working capital functions as direct liquidity, larger allocations typically receive additional scrutiny to ensure the requested amount is reasonable and supported. In many cases, lenders will not simply reduce the working capital amount, but may instead decline the loan altogether if the allocation appears unsupported.
Even when approved, lenders may choose to structure portions of working capital to be disbursed over time rather than fully funded at closing.
Timing Gaps Can Affect Execution
The timing of when proceeds are disbursed can influence how funds are actually deployed.
Even when the total loan amount is sufficient, delays between when funds are needed and when they are released can impact how easily the business is able to execute its initial plan.
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