Loan Draw

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Loan Draw

What is Loan Draw?

A scheduled disbursement of construction loan funds based on completed work phases, allowing borrowers to access funds as construction progresses and providing lender oversight.

Description

A loan draw is a scheduled disbursement of construction loan funds based on completed work phases, allowing borrowers to access funds as construction progresses and providing lender oversight of project completion. This financing mechanism ensures that construction funds are released incrementally as work is completed and verified, protecting both lenders and borrowers throughout the construction process. Loan draws are essential components of construction financing, enabling cash flow management and project oversight.

The primary purposes include providing incremental funding as construction progresses, ensuring work completion before fund disbursement, managing cash flow for construction projects, protecting lender interests through progress verification, enabling contractor and subcontractor payments, supporting project scheduling and milestone achievement, and maintaining financial control throughout construction.

Draw schedule and phases involve foundation work, framing completion, mechanical rough-in, and finish work stages for systematic fund release.

FAQs

  • What is a loan draw?

    A loan draw is a scheduled disbursement of construction loan funds based on completed work phases, allowing access to funds as construction progresses.

  • How often can you request loan draws?

    Draw frequency depends on the loan agreement, but typically occurs at major construction milestones like foundation, framing, and completion phases.

  • What documentation is required for a draw request?

    Required documentation typically includes invoices, lien waivers, progress photos, inspection reports, and completion certifications.

  • How long does draw approval take?

    Draw approval typically takes 3–10 business days, depending on inspection scheduling, documentation review, and lender processing procedures.

  • What happens if a draw is denied?

    If denied, the lender will specify deficiencies that must be corrected, such as incomplete work, missing documentation, or quality issues.

  • Are there fees for loan draws?

    Many lenders charge draw fees ranging from $100–500 per draw to cover inspection and processing costs.

  • What is retainage in construction draws?

    Retainage is a percentage (typically 5–10%) of each draw held by the lender until project completion to ensure quality and completion.

Fun Fact

Fun Fact: The first construction loan draws were used in the 1920s during the building boom, but were much simpler – often just a handshake and visual inspection! Modern draw systems can involve GPS tracking and drone inspections to verify work completion. Some lenders now offer “fast-track” draws that can be approved in 24 hours for qualified borrowers. Interestingly, the average construction project requires 4-6 draws, but complex projects can have 10+ draws throughout construction!

CSI Code

01 20 00

NAHB Code

140