What is excess equity?
Excess equity occurs when a developer contributes more cash equity to a project than the amount defined in their equity funding source commitment. This typically happens when the developer wants to cover early costs without drawing on the construction loan — avoiding the interest that accrues on loan draws.
In this scenario, the total project costs remain unchanged, the loan commitment stays at its full amount, and the equity source simply shows more funding than was originally committed.
How Rabbet handles this
Rabbet allows you to draw against a funding source even after its available balance has been reduced to zero. When this happens, the funding source will show a negative balance after draw — reflecting that it has been over-funded relative to its commitment.
Rabbet does not prevent draws on a depleted equity source. The balance will go negative, which is the intended way to represent excess equity contributions
The example below shows what this looks like for a project with $3M in total costs where the developer's equity commitment is $2.5M but they contribute $3M — covering all costs without touching the loan:
The negative balance on the equity source signals that the developer has funded beyond their stated commitment. The loan commitment and total project budget remain intact.
Step-by-step: drawing beyond an equity commitment
1. Navigate to the draw's Funding Sources tab. Open the relevant draw and select Funding Sources from the draw navigation.
2. Locate the equity funding source. Find the equity source (e.g. "Developer Equity") in the allocation table. Confirm its available balance is at or near $0.
3. Enter the additional draw amount manually. In the Requested This Draw field for the equity source, enter the excess amount the developer is contributing this draw. Rabbet will not block the input.
4. Confirm the allocation is balanced. The Difference column on the Funding Sources tab should show $0.00, meaning the total funded across all sources matches the draw total. If it does not, adjust amounts across sources accordingly.
5. Save or submit the draw as normal. The equity source will display a negative Balance After Draw, which is expected and correct in this scenario.
Things to keep in mind
Note: Do not reduce the loan commitment to compensate for excess equity. The loan commitment should remain at its full original amount on the Funding Sources tab. Reducing it would misrepresent the project's financing structure. |
Do not create a separate "Excess Equity" funding source to track the overage — this would cause the total funding sources to exceed the project budget and create a mismatch.
The negative balance is visible to all users with access to the Funding Sources tab. Consider noting the reason in the draw's comments or documents to provide context for reviewers and approvers.