A loan in practice

A $250,000 loan, step by step

Illustrative only. This example assumes a constant 10% annual interest rate, 30/360 interest calculation, a 1% annual servicing fee on outstanding principal using the same convention, and a separately paid 1% origination fee. Actual rate resets, day counts, fees, and payment priority depend on signed terms. Amounts below are rounded to cents.

1. Approval. The administrator confirms $1,000,000 eligible NAV. A 15% haircut and 30% advance rate produce a $255,000 borrowing base. The lender approves $250,000, subject to completed funding conditions. Initial LTV is 25%.
2. Funding. The borrower receives $250,000 and pays the $2,500 origination fee separately. Principal is $250,000. The servicer records funding and reconciles it to the bank confirmation.
3. First monthly payment. After 30 days, the borrower pays $2,083.33 interest and $208.33 servicing fees from other cash. Principal remains $250,000.
4. Fund distribution. After another 30 days, a $25,000 distribution reaches the controlled account. For this example, $2,083.33 pays current interest and $208.33 pays servicing fees; the remaining $22,708.34 reduces principal to $227,291.66. This assumes a full cash sweep and no other charges or arrears.
5. Updated collateral. Assuming no other valuation movement, the distribution reduces fund NAV to $975,000. The borrowing base becomes $248,625. Distributions reduce both the holding value and the loan balance; they are not counted twice.
6. NAV decline. An immediate further 20% decline takes NAV to $780,000 and the borrowing base to $198,900. Against $227,291.66 principal, the shortfall is $28,391.66 before any additional accruals. New draws stop. The lender requests a cure under the documents; a cash principal payment of that amount would restore compliance if values and other obligations remain unchanged.

The servicer would reconcile each movement and preserve the administrator reports, bank confirmations, calculations, and approvals. A cure restores the borrowing-base test in this example; it does not guarantee recovery or eliminate other defaults.