How Construction Loan Draws Work on a New Multifamily Building
If you are building with a construction loan, the bank doesn't hand you the money up front. It releases it in pieces, called draws, as the work gets done. How well you manage those draws decides whether your job keeps moving or sits waiting for funding.
We handle bank draw administration on our projects, so here is how the process usually works on a new multifamily building.
The budget and the draw schedule
Before closing, the lender approves a construction budget broken out by line item: foundation, framing, MEP, roofing, finishes, and so on. That budget becomes the schedule of values that every draw is measured against.
Some lenders draw on a fixed schedule tied to milestones. Most draw on percent complete, line by line. Know which one your lender uses before you start.
What goes into a draw request
A typical draw package includes:
The application for payment, usually on AIA G702 and G703 forms, showing each line item, what was billed before, what is being billed now, and what is left.
Invoices from the subcontractors and suppliers for the work being billed.
Lien waivers from the GC and subs for the money paid on the previous draw.
Any change orders the lender needs to approve.
Updated insurance or permit documents if the lender asks for them.
Every lender has its own checklist, so get theirs in writing at closing.
The inspection
Before the bank releases funds, it sends an inspector to the site. The inspector walks the job and confirms that the work you billed is actually in place. If you billed 60 percent of framing and the inspector sees 40 percent, the draw gets cut back to 40.
The fix is simple: bill what is installed, not what is scheduled. Clean, honest draws get approved faster.
Retainage
Most lenders hold back a percentage of each draw, called retainage, until the end of the job. That money is released after completion, usually tied to the certificate of occupancy and final paperwork. Plan your cash flow and your sub contracts around it.
Title updates
On many loans the title company updates the title search before each draw to make sure no new liens have been filed. An unexpected lien from an unpaid supplier can freeze the whole draw. Paying subs on time and collecting waivers protects everyone.
Why draws get held up
From what we see, most delays come from the same handful of things:
Billing ahead of the work.
Missing or unsigned lien waivers.
Change orders the lender never approved.
Budget lines running over with no plan for where the money comes from.
Paperwork that doesn't match the lender's format.
Keep the job moving
A new building runs on cash flow. When the draw process is organized, the subs get paid, the job keeps its crews, and the schedule holds.
Every loan is different, so always follow your lender's draw requirements and talk to your lender, accountant, and attorney about your specific deal. This post is general information from our experience, not financial or legal advice.
If you are planning a new building in Hudson County and want a builder who handles the draw side as well as the construction, call us at (201) 492 2653 or reach out through our quote page.
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