What is the difference between a funding condition and a disbursement condition?

• A. Funding conditions are prerequisites before funds are released; disbursement conditions are details of how funds are disbursed once conditions are met.
• B. Funding conditions determine interest rate; disbursement conditions determine repayment terms.
• C. Funding conditions are optional; disbursement conditions are mandatory.
• D. Funding conditions relate to collateral value; disbursement conditions relate to insurance.

Answer: (A)

Funding conditions are prerequisites that must be satisfied before any funds are released. They cover things like completed documentation, regulatory approvals, and the lender’s due diligence, and the loan isn’t funded until these conditions are met. Disbursement conditions describe how and when the money is actually drawn once funding is unlocked—they set the rules for each tranche, such as required notices, timing, and any ongoing covenants or conditions that must be in place for a draw to occur. So you first meet the funding conditions to unlock the funds, and then you satisfy the disbursement conditions to release the money for use. The other choices mix in unrelated concepts like interest terms or collateral/insurance, which aren’t the defining difference.