Cash Sweep
A cash sweep is a loan provision that requires a property's excess cash flow, after operating expenses and debt service, to be held by the lender or used to pay down the loan instead of going to the owner. It is usually triggered when the property breaches a covenant, such as a minimum debt service coverage ratio.
Why cash sweeps matter
A cash sweep protects the lender when a loan starts to weaken. Instead of letting the owner take distributions while performance slips, the lender keeps the excess cash as extra security or uses it to reduce the loan balance.
Sweeps usually switch on and off with the covenant. If the property's DSCR or debt yield falls below the trigger level, the sweep begins, and it ends once the property meets the test again for a set period.
For owners, a sweep cuts off cash distributions, which can affect investor returns and fund reporting, so owners watch sweep triggers closely.
Cash Sweep vs. Cash Trap
A cash trap holds excess cash in a lender-controlled reserve account, where it may be released once the property recovers. A cash sweep may apply that cash directly to paying down the loan. The two terms are often used loosely, so the loan agreement defines exactly what happens to the money.
How Smart Capital Center handles cash sweeps
Smart Capital Center's AI agents test each loan's sweep triggers every time new operating statements arrive, show how close each loan is to the threshold, and flag loans entering or leaving a sweep for the lending team.
Frequently asked questions
What triggers a cash sweep?
Common triggers include debt service coverage or debt yield falling below a set level, a major tenant leaving or going dark, a loan approaching maturity without a clear refinancing plan, or a borrower default. Each loan agreement lists its own trigger events and how they are tested.
How does a cash sweep end?
Most sweeps end when the property meets the triggering test again, often for two consecutive quarters, or when the triggering event is cured, such as a replacement tenant signing a lease. Some loan agreements also allow the borrower to end a sweep by paying down the loan.
Where does swept cash go?
Swept cash goes into a lender-controlled account through a cash management arrangement. Depending on the loan agreement, it may be held as additional reserves, used to fund specific costs such as leasing, or applied to reduce the loan balance. The borrower usually receives regular statements showing the account balance.