How are loan draws figured for my construction project?

Q:

How are loan draws figured?

A:
A good draw schedule balances the contractor’s need to get paid for work done and materials purchased, with the homeowners’ and their bank’s desire not to pay too far ahead of what has been completed. On a new custom home, payments are usually matched to the completion of a particular phase: foundation, frame, drywall, and so on.

On a remodel/renovation, payments often depend on the percentage that has been completed. It’s important that the homeowner communicate with their contractor to ensure there are no misunderstandings about how and when funds will be disbursed.

This is particularly important because contractors rarely do all the work themselves, they hire sub-contractors (electricians, plumbers, drywallers) to fulfill a lot of the work. These sub-contractors are independent businesses and require monies to be paid so that they are able to pay their employee’s and continue working. They don’t have the ability to carry a lot of debt and thus require a prompt payment once their work has been completed and they have submitted a bill for it.

If you don’t have a well designed draw schedule then you could end up holding up your own job as sub-contractors will not return to finish or start other work without being paid for what is already owed to them.

Rob Abbott

Village Builders Inc.