Construction and Drawdown Loans

Building blocks: Disbursements + Commitment interest

Also known as: Baudarlehen, Abrufdarlehen, Darlehen mit Abruf in Tranchen, Bereitstellungszinsen, drawdown facility

The bank commits a total amount, but the money is drawn in tranches as the project progresses. Interest is charged only on the drawn part. On the undrawn part the bank charges commitment interest once a commitment-free period has passed, as compensation for keeping the money available.

How it works

1. Formula

$$I = D \cdot r \cdot \tau$$ $$C = (K - D) \cdot c \cdot \tau_c$$

where $I$ is the interest, $D$ the drawn balance, $r$ the interest rate, $\tau$ the year fraction of the period under the loan's day count convention, $C$ the commitment interest, $K$ the committed amount, $c$ the commitment rate and $\tau_c$ the same year fraction counted only after the commitment-free period.

2. With the terms

$$\text{Interest} = \text{Drawn balance} \cdot \text{Rate} \cdot \text{Year fraction}$$ $$\text{Commitment interest} = (\text{Committed amount} - \text{Drawn balance}) \cdot \text{Commitment rate} \cdot \text{Year fraction after the free period}$$

3. With the example numbers: 100,000 EUR committed at 4.00 % p.a., 40,000 drawn at the start, commitment rate 3.00 % p.a., commitment-free for the first six months, year 1.

$$I_1 = 40{,}000 \cdot 0.04 \cdot 1 = 1{,}600.00$$ $$C_1 = (100{,}000 - 40{,}000) \cdot 0.03 \cdot \tfrac{6}{12} = 900.00$$

Example

100,000 EUR committed at 4.00 % p.a., bullet repayment after 5 years. 40,000 drawn at the start, the remaining 60,000 at the start of year 2. Commitment interest 3.00 % p.a., commitment-free for the first six months.

Compared with the plain bullet loan, the staged drawdown saves 2,400.00 of interest in year 1 at a cost of 900.00 in commitment interest.

In LoanMonitor

• Wizard: enter the committed amount as the principal. Under Agreements, enter the Commitment interest (% p.a.) and Commitment-free until (defaults to the disbursement date).
• Record each payout under Adjustments → Disbursements with its date and amount. Interest is charged only on what has been drawn.
• If the loan is not drawn as agreed, switch Not drawn as agreed on under Adjustments → Commitment, set Accrues from, choose whether commitment interest is paid in cash with each installment or added to the balance, and set an optional drawing deadline after which the undrawn rest is treated as not taken.
• The schedule then shows a Commitment column, and exports carry it as well.
• The repayment pattern after the drawdown phase is free: bullet as in the example, annuity, or linear.

Related

• Loan Types overview
• Bullet Loan
• Disagio