Packaging a draw request involves organizing and presenting information in a clear, thorough, professional and timely manner to facilitate the efficient processing and approval of funds. One of the biggest challenges for both construction borrowers and construction lenders is to quickly review and approve draw requests because these large files typically come with honest mistakes or hard to read elements like a handwritten receipt or invoiced items that don’t seem to match the schedule of values. It’s the challenging job of construction loan administrators to make sense of the draw packages, quickly schedule a third-party inspection, and work within their organizations to get proper approvals.
Below are best practices for effectively packaging a construction draw request to ensure quick processing and approval of funds.
Communicate Clearly
Include pertinent notes in a cover letter that clearly communicates the purpose of the draw request, the amount requested, and any specific instructions or requirements for processing. Address any concerns or issues proactively to facilitate smooth communication and approval.
Ensure Documentation is Complete, Clear and Organized
Include all relevant documentation such as invoices, receipts, budget (aka schedule of values), change orders, and lien waivers related to the work completed since the last draw request. Attach any additional supporting documentation that may be required, such as progress photos, inspection reports, certifications, or compliance documentation. This helps validate the work completed and provides evidence of compliance with regulatory requirements and project specifications. Ensure that all documentation is accurate, up-to-date, and properly labeled.
Include a Detailed Cost Breakdown
Provide a detailed breakdown of costs associated with completed work, including labor, materials, equipment, subcontractor expenses, permits, and any other relevant expenses. This helps your lender understand how funds are being allocated and ensures transparency in financial reporting.
Complete the Checklist
If your lender has given you a checklist, be sure to fill it out completely and accurately. Missing or inaccurate information can delay the processing of the draw request and may raise questions or concerns from your lender.
Provide a Progress Update
Include a summary of the progress made since the last draw request, highlighting key milestones achieved, any challenges encountered, and the overall status of the project. This provides context for the requested funds and demonstrates progress towards project goals.
Review for Accuracy and Obtain Approvals Before Submission
Before submitting the draw request, review it carefully to ensure accuracy, completeness, and compliance with all relevant requirements. Obtain any necessary approvals or signatures from project stakeholders before forwarding the request to your lender.
Submit Draw Requests on Time
Submit draw requests in a timely manner according to the schedule outlined in the project agreement or contract. This helps maintain a steady flow of funds and avoids delays in payments to contractors, suppliers, and other stakeholders.
In conclusion, effectively packaging a construction draw request is crucial for facilitating efficient processing and approval of funds. Clear communication, complete and organized documentation, detailed cost breakdowns, adherence to checklists, progress updates, accuracy review, and timely submission are essential best practices. These practices help construction borrowers and lenders overcome challenges, ensuring smooth communication, approval, and timely disbursement of funds, ultimately contributing to the successful execution of construction projects.
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