Construction Loan Disbursement: How the Money Reaches You

A construction loan is a commitment, not a deposit. At closing you receive the land or acquisition portion; the construction portion sits undrawn and is released in stages as the work gets done. Understanding that sequence is the difference between a build that runs smoothly and one that runs out of cash in month three.

The schedule itself is covered in construction loan draw schedules. This is what happens between requesting a draw and the money arriving.

The sequence

• You request the draw, itemised against the approved budget.
• An inspection is ordered to verify completion. See draw inspections.
• The report comes back with a verified percentage per line item.
• Lien releases are collected from the subs being paid.
• Funds are disbursed, usually by wire, sometimes directly to subs rather than to you.

Every one of those steps is calendar time, and it repeats on every draw.

You are always funding ahead

This is the part that surprises first-time builders. Work has to be complete before it is verified, and verified before it is paid. So you or your subs carry the cost of each stage before the draw covering it arrives.

Plan working capital for at least one full draw cycle. A builder with no cash between releases is a builder whose site stops.

Retainage

Many structures hold back a percentage of each draw until the project is complete and signed off. It protects against a job abandoned at 90%. Budget for it, because that held-back money is not available to you mid-build even though the work is done.

Interest during the build

Interest normally accrues on drawn funds only, not the full commitment, which is why a slower early phase costs less than people expect. Our ground-up terms run 12 to 24 months with draws per build schedule.

Model it in the construction loan calculator. Terms are subject to underwriting and this is not a commitment to lend.