Glossary · underwriting

Source of Funds SOF

Also called source of funds documentation, seasoning, proof of funds.

Evidence of where money came from — an equity injection, a large deposit, a gift, a rollover — required by lenders to verify the money is yours and by anti-money-laundering rules to know who is behind it.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Two separate regimes ask the same question for different reasons.

Underwriting verification

A lender financing an acquisition, a construction project or a down payment needs the buyer's contribution to be the buyer's. That means bank statements covering a look-back period long enough to show the money did not appear last week, plus documentation for anything unusual: a gift letter with the donor's own statements, closing documents from a property sale, retirement rollover paperwork, or a signed agreement for an investor's contribution. Money that arrives shortly before closing without a paper trail is not counted.

Related tests: the funds must not be borrowed against the business being acquired, and borrowed equity generally does not count unless the program specifically allows it on stated terms.

Anti-money-laundering

Financial institutions operate customer due diligence programs under the Bank Secrecy Act and its implementing rules, including identification of beneficial owners of legal entity customers. Unexplained deposits, third-party funds, transactions inconsistent with the stated business, and patterns that look like structuring all generate questions and can freeze a funding or an account while they are answered.

In bank-statement underwriting

Every large credit into your account gets classified. Transfers from other accounts you control, proceeds from another advance, owner injections and refunds are stripped out of revenue. This is the same exercise from the funder's side, and it decides the size of your offer.

Where this one catches people

The most common failure is borrowed equity. A buyer three weeks from closing is short on the down payment, takes an advance or a personal loan, and deposits it. It appears in the statements, it is not the buyer's own capital, it is debt that must be serviced out of the same cash flow the lender just underwrote, and it can unwind an approval at the final review. The same applies to a credit card cash advance and to money "loaned" by the seller off the books.

Season and document before you apply. Move funds into the account you will show, keep the statements from the source account, and write a short memo for each large credit with the supporting document attached. Handing an underwriter a clean, pre-assembled explanation is the difference between a question and a condition.

Where you will meet this term

Merchant Cash Advance Working Capital Term Loan SBA Loan

Read next

Bank statement underwritingMaking a funding decision primarily from three to twelve months of business bank statements rather than from … Beneficial ownerAn individual who owns a defined share of a business or exercises significant control over it, and who must b… Change of OwnershipA transaction in which the ownership of a business changes hands — financed as an acquisition loan on the tar… Equity injectionThe borrower's own money going into a transaction alongside the loan, required by SBA on startups and changes… Know your business (KYB)Verification of the business entity itself — that it legally exists, is in good standing, operates where it c… Know your customer (KYC)The identity verification a financial institution performs on the individuals behind an account or transactio… OFAC screening (OFAC)The sanctions check every US funder runs against Treasury's Specially Designated Nationals and other blocked-… True RevenueWhat an underwriter concludes you actually sold, after stripping transfers, funding proceeds, refunds, redepo… Verification of deposit (VOD)Confirmation of a business's bank activity taken from the bank directly rather than from documents the applic…

Source of Funds — common questions

What does source of funds mean?

Evidence of where money came from — an equity injection, a large deposit, a gift, a rollover — required by lenders to verify the money is yours and by anti-money-laundering rules to know who is behind it.

Where does source of funds catch people out?

The most common failure is borrowed equity. A buyer three weeks from closing is short on the down payment, takes an advance or a personal loan, and deposits it. It appears in the statements, it is not the buyer's own capital, it is debt that must be serviced out of the same cash flow the lender just underwrote, and it can unwind an approval at the final review. The same applies to a credit card cash advance and to money "loaned" by the seller off the books.

Is source of funds the same as an interest rate?

Source of Funds is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does source of funds apply to?

Merchant Cash Advance, Working Capital, Term Loan, SBA Loan.

Is there a worked example of source of funds?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside source of funds?

Bank statement underwriting, Beneficial owner, Change of Ownership, Equity injection, Know your business.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.