A construction loan is not a lump sum of cash. It is a line of credit that you have to fight for every month. The "Draw Request" is the formal application to the bank to release funds for work completed.
The Process
- The G702/G703: The General Contractor submits the AIA payment application forms, detailing the percentage of completion for every line item (concrete, framing, electrical, etc.).
- The Inspection: The bank sends their inspector (a third-party engineer) to the site to verify that the work claimed is actually done.
- Title Update: The title company runs a search to ensure no mechanic's liens have been filed since the last draw.
- Funding: If everything checks out, the bank wires the money.
Retainage
The bank (and usually the developer) holds back 10% of every payment as "retainage." This is the stick used to ensure the contractor finishes the punch list at the end of the job. It is released only upon Final Completion.
Lien Waivers
This is critical. For every dollar you pay out, you must collect a lien waiver from the GC and the major subs. This document waives their right to file a lien on the property for that specific payment. Without it, you are exposed to double payment risk.
Balancing the Budget
The bank will always check if the "Cost to Complete" is less than the "Undisbursed Loan Funds." If you go over budget and the loan isn't enough to finish the job, the loan is "out of balance." You will have to write a check to cover the difference before the bank releases another dime.
Conclusion
The draw process is administrative heavy lifting. Having a dedicated person to manage the paperwork is often the difference between a smooth project and a stalled one.