| Purpose | Plan the cash needed between construction advances |
| Compare | Approved budget, earned work, payment due and cash released |
| Example | Illustrative draw math, not an offered loan |
A construction loan commitment is not a bank balance available on day one. Funds may be held back and released as work meets the loan’s draw conditions. Before starting, match the contractor’s payment dates to inspection, documentation and disbursement requirements. The gap between paying for work and receiving an advance is part of the builder’s cash plan.
Stonehaven helps builders review that structure as a mortgage broker. A proposal that finances a large share of the budget still needs a workable first-draw plan and enough liquidity for the next stage.
Separate four numbers on every draw
- Budget: the approved allowance for the trade or work item.
- Earned work: progress accepted for the payment application, including any eligible stored materials.
- Payment due: the amount after contractual retainage and prior payments.
- Loan disbursement: what the financing actually releases after its own conditions.
AIA describes G702 and G703 payment applications as recording completed work, stored materials, retainage, prior payments and change orders. A contractor payment certification is not itself approval of a loan draw. Confirm the documents required for your project rather than assuming every financing arrangement uses AIA forms.
An illustrative draw calculation
Assume an approved $1,000,000 construction contract. At the current application, accepted cumulative work is $300,000, assumed retainage is 10%, and previous certified payments total $180,000. These assumptions illustrate a payment calculation, not a standard retainage rule.
| Calculation | Amount |
|---|---|
| Accepted cumulative work | $300,000 |
| Less 10% assumed retainage | $30,000 |
| Net earned amount | $270,000 |
| Less prior certified payments | $180,000 |
| Current payment application | $90,000 |
The $90,000 application does not establish when the money reaches the project. If the builder must pay that amount before reimbursement, and a separate $25,000 deposit is due before it becomes draw-eligible, the temporary cash requirement is $115,000 before other expenses. Confirm that the deposit is not already included in the current payment to avoid double counting.
Build the first-draw plan before closing
- List what must be paid before mobilization: deposits, insurance, permits or site preparation.
- Identify which items are eligible immediately, reimbursable later or excluded.
- Confirm whether borrower equity must be contributed before loan advances.
- Get the inspection request process and documentation checklist in writing.
- Ask who resolves a disputed completion percentage or missing invoice.
- Keep a separate contingency for unexpected costs; do not spend it twice as routine working cash.
Ask about inspection and draw fees, minimum request sizes, retainage release and treatment of change orders. A quoted inspection turnaround is not necessarily the total time from requesting money to receiving it.
What if work costs more than the approved budget?
Document the scope change, revised price and effect on remaining costs before assuming the loan will fund it. Ask whether the change must be approved in advance and whether extra equity is required. An undrawn commitment can already be allocated to unfinished work; it is not automatically a free contingency.
Are interest payments based on the full loan or drawn funds?
Read the proposal. Ask for the exact interest basis, any minimum-interest provision and any fee on unused funds. If interest is calculated on outstanding principal, a later draw changes future interest. If the agreement uses another basis, the same draw schedule can produce different costs. An interest reserve also has a defined budget and can run out.
Compare the separate roles of interest reserve, contingency and working cash. Our 100% LTC guide explains why financing eligible costs does not guarantee zero cash needed.
A practical package for the financing review
Send a summary of the project, total cost, requested loan, permit status and intended first work package. Keep supporting bank statements and private contractor documents out of the public inquiry form. Stonehaven can help compare the funding sequence with the construction schedule through our construction financing review.
Sources and scope
The AIA payment-application overview informs the document explanation. The OCC CRE handbook discusses construction monitoring and budget controls. These are not uniform rules for every private loan. Reviewed October 21, 2026. The cash example is original hypothetical arithmetic.