How much cash you need at closing to clear two positions

Four lines of arithmetic, done before the term sheet is signed rather than on the morning of funding.

Net funding = gross facility − origination fee − every other closing cost

Cash at closing = net funding − payoff one − payoff two − per-diem buffer

If the second line is negative, that is what you have to bring. Most of the time nobody computes it until the closing statement arrives.

A worked case that does not quite work

• Gross: $95,000.00
• Less origination at 4.99%: $4,740.50
• Less filing, wire, documents: $1,390.00
• Net funding: $88,869.50
• Less payoff one: $50,400.00
• Less payoff two: $38,900.00
• Less per diem, 3 business days at $700: $2,100.00
• Cash at closing: −$2,530.50

You need to bring $2,530.50, and a transaction that looked like a clean refinance of $89,300 of debt with a $95,000 facility is short.

Two levers close the gap. Fund one business day after the letters are issued instead of three, and the per diem drops to $700 — a $1,400 improvement from calendar alone. Or increase the gross.

Grossing up

To clear $89,300 of payoffs plus $2,100 of per diem and $1,390 of fixed costs, with a 4.99% origination fee taken from the gross:

Required gross = (89,300 + 2,100 + 1,390) ÷ (1 − 0.0499) = $97,663.40

Round to $98,000 and the transaction closes with a small surplus. The extra $3,000 of facility costs you the origination on it plus whatever the facility's own cost structure charges — which is a real cost, and much smaller than a failed closing.

Note what the formula does: dividing by (1 − fee rate) rather than multiplying by (1 + fee rate). Adding 4.99% to $92,790 gives $97,420, which is $243 short, because the fee is charged on the higher gross. This is a common and consequential arithmetic error.

The four inputs, and where each goes wrong

The failure mode if you get it wrong

A short payoff is a partial payment. The old obligation survives by whatever the shortfall is, the UCC-1 stays on record, the personal guarantee stays live, and the new funder's condition precedent — that the prior positions be cleared and terminated — is unsatisfied.

In practice the new funder holds back your remaining proceeds until it is fixed, which can take days, during which the old position keeps debiting. A $2,500 miscalculation becomes a two-week problem.

The buffer

Build in a contingency of around 2% of total payoffs, or three extra business days of per diem, whichever is larger. In the worked case that is roughly $2,100 to $2,800. If it is not needed it comes back to you as cash at closing. If it is needed, it saves the closing.

What changes if one position is not being paid off

Where the second position is being subordinated rather than cleared, the arithmetic gets shorter and the conditions get longer.

Illustrative only, on the same facility: net funding $88,869.50, one payoff of $50,400 and a one-day per-diem buffer of $700 leaves $37,769.50 of cash at closing. That is a comfortable transaction on the numbers.

What it costs instead is a signed subordination agreement before funding, often a consent fee and sometimes a paydown demanded by the subordinating creditor, plus a set of restrictions on what you may pay that creditor afterwards. Put the consent fee and any paydown into the same four-line calculation as a closing cost, because they are payable on the same day and they come out of the same money.

What to do

1. Request payoff letters from both positions, each good through the same date, each stating the per-day amount after that date.
2. Get the incoming funder's complete fee schedule in writing.
3. Run the four lines above.
4. If the result is negative, decide between grossing up, funding earlier in the quote window, or bringing cash — and decide before signing.
5. Require direct disbursement to each outgoing funder, with the amounts named on the disbursement authorisation and tied to the attached letters.
6. Agree in advance, in writing, who covers a shortfall discovered on the day.
7. Fund early in the week, allowing for wire cut-off times.

What to have ready

Both payoff letters, refreshed within a few days of the funding date. The incoming funder's net funding statement, which you should reconcile against your own version line by line. A note of the last already-originated debit on each outgoing position. And the contingency, in cash, in an account you can wire from the same day.

Fee structures, payoff computations and closing conditions vary by funder and by agreement, and how each is treated depends on the documents and on the state law they select. This describes the arithmetic and is not legal or financial advice.