What is a Payment Direction?

The mechanic, in one paragraph

Commercial lending closings involve money flowing from a lender into a borrower’s account, after which the borrower typically owes various third parties — brokers, lawyers, advisors, sometimes vendors. A Payment Direction simplifies that flow: instead of the lender disbursing the full proceeds to the borrower and the borrower then writing cheques to each third party, the borrower signs a one-page direction telling the lender exactly which third parties get paid first, and how much, from the gross loan proceeds. The lender acts as the paying agent at closing. The borrower receives the net.

The key facts

• What it is: a written authorization signed by the borrower (and accepted by the lender) directing the lender to disburse part of the loan proceeds to one or more named third parties.
• When it is signed: at closing, alongside the rest of the loan documentation.
• Who acts as paying agent: the lender — the same bank, credit union, or caisse populaire that is funding the loan. The borrower does not handle the third-party payment directly.
• Common uses: broker fees, advisory fees, specific vendor payments, lawyer fees, sometimes payouts of existing debt being refinanced from the proceeds of the new loan.
• What it is not: a hidden charge or a lender-imposed fee. The borrower is the party authorizing the payment; the lender is just executing the instruction. The amount and the payee are both spelled out on the direction itself.

Why this structure exists

Three reasons commercial closings use Payment Directions rather than two-step payments.

1. Cleaner accounting.The borrower never sees the third-party portion of the proceeds, so there is no cash sitting briefly in the borrower’s account before being paid out. The lender’s ledger shows the gross disbursement and the third-party payments together at closing.

2. Stronger alignment for the third party. When a third party — a broker, an advisor, an arranger — is paid via a Direction tied to closing, the third party only gets paid if the loan actually closes. That structurally aligns the third party’s incentive with the borrower’s outcome: nobody is paid for a deal that does not happen.

3. Less administrative friction at closing. Without a Payment Direction, the borrower has to receive the funds, confirm the net amount, then issue separate payments to each third party — multiplied across however many parties are involved. The Direction collapses all of that into one page signed once.

How Capital Toolkit’s 3% White Glove success fee uses a Payment Direction

Capital Toolkit’s White Glove service tier carries a two-part fee: $5,000 paid upfront when the engagement starts, and a 3% success fee on the funded loan amount, paid only if the loan is approved and funded. The 3% is structured as a Payment Direction at closing.

The mechanic, in five steps:

1. The borrower engages Capital Toolkit at the White Glove tier, pays the $5,000 upfront, and begins the application process under Capital Toolkit’s preparation and placement.
2. The application is submitted to the lender Capital Toolkit matches the file to.
3. The lender approves the loan.
4. At closing, the borrower signs a one-page Payment Direction instructing the lender to pay Capital Toolkit’s 3% fee directly out of the loan proceeds. The fee amount is 3% of the funded loan amount, calculated and stated on the Direction itself.
5. The lender disburses the loan: the 3% goes to Capital Toolkit, the balance goes to the borrower or to the transaction that the loan is funding (depending on how the file is structured).

The borrower does not write a separate cheque to Capital Toolkit. The bank acts as the paying agent.

What happens if the loan does not fund

If the application is not approved, or if the borrower decides not to proceed with the loan after approval, the 3% success fee is not owed. Under White Glove, that is the entire amount: the $5,000 upfront covers the work Capital Toolkit performs, and nothing further is charged. The education videos are always free regardless of outcome.

This is the structural advantage of a closing-tied Payment Direction: the fee is contingent on the loan funding. If there is no loan, there are no proceeds, there is no Direction, and there is no fee.

How it shows up in your loan documents

The Payment Direction is a single page that names the payee (Capital Toolkit), states the amount in dollars (calculated as 3% of the funded loan amount), and is signed by the borrower at closing. The lender keeps a copy in the loan file; the borrower keeps a copy; Capital Toolkit receives a copy as part of the closing package. The fee appears on the lender’s disbursement statement as a distinct line item, so there is no ambiguity about what was paid to whom.

Is the 3% fee tax-deductible?

Financing advisor fees paid out of loan proceeds — broker fees, arranging fees, success fees on financing engagements — are generally treated as financing expenses, and for operating businesses they are usually deductible in some form (often amortized rather than expensed in the year paid). The specific treatment depends on the borrower’s facts, the use of the loan proceeds, and the structure of the engagement. This is a CPA conversation, not a CSBFP conversation; Capital Toolkit does not give tax advice.