Before you depend on the first construction draw, know what releases it. It sounds simple, but too often the little things are missed.
Your contractor’s payment schedule and your loan’s funding process may not follow the same timetable. If a payment comes due before the corresponding advance is available, your business needs a plan to cover the difference, even when the expense is already included in the construction budget.
Closing the loan does not make every future advance automatic. Each draw remains subject to the loan agreement and its funding conditions.
In The 2027 Capital Plan, we connected the construction schedule, available cash and loan maturity. This week, we bring that planning down to the project level: how will money move as the work progresses, starting with the first construction draw?
Confirm When Your Equity Goes In
Understand the amount, timing and documentation of your equity contribution, and above all the order in which it is spent.
Some capital sources require equity first, sometimes described as FIFO: the borrower’s entire required contribution is spent on the project before the first loan advance is released. Others fund on a pro rata basis, pairing each draw with a share of borrower cash. On the same budget, the two structures produce very different cash needs in the first weeks of a build.
We often hear from new builder relationships who learned this the hard way. A previous “investor” required equity first, and the builder ended up carrying site work, permits and subcontractor deposits out of pocket for weeks before any loan funds arrived.
Before closing, ask:
- Is equity required first, pro rata, or on another schedule?
- How much equity must be in the project before the first draw can fund?
- What counts toward it: land equity, costs already paid, or only cash spent after closing?
- What documentation proves the contribution?
Reflect those answers in your cash plan. Identify what the business must contribute at closing, what remains due afterward and which early expenses may require cash before a draw is available.
Understand What Makes a Draw Package Complete
Confirm which costs are eligible for funding and what information must accompany each request. Depending on the loan and expense, supporting items may include invoices, payment records, lien waivers (in Texas, these must substantially follow the statutory forms), inspection results or other documentation. Ask how deposits, stored materials and work not yet installed are treated rather than assuming every budgeted expense can be funded at the same point.
Assign responsibility for assembling and checking the package. The contractor, project manager and finance team should know who supplies each item and who resolves missing information.
Know What Happens Between Inspection and Funding
An inspection and a disbursement are separate steps. Confirm who requests the inspection, how access is coordinated and what additional review or documentation is required before funds can be released. Ask about expected processing time once a complete request is received and the circumstances that could affect that timing.
Compare that process with the contractor’s payment obligations. Discuss anticipated funding dates before making commitments that depend on them. As we explored in Time Has Become One of the Most Expensive Inputs in Home Building, every day between steps carries a cost.
Establish How Budget Changes Are Reviewed
Understand the financing implications before authorizing additional work. Ask how change orders, cost overruns, contingency use and transfers between budget categories are reviewed. Confirm whether approval is required before committing to an expense and whether additional borrower funds may be needed.
When the construction budget changes, update the remaining cash required to finish.
Consider a hypothetical example: a subcontractor requires a deposit before mobilizing. The expense appears in the budget, but that alone does not establish when it can be funded. Before promising payment, confirm whether the deposit is eligible for an advance, what documentation is required and whether the business must initially pay it from its own cash. The overall budget may be unchanged; the timing still needs to work.
Put the First 30 Days on Paper
Before the next start, map anticipated project payments against the draw process, starting with the first construction draw. For each payment, identify:
- When it is due.
- Whether it will initially come from borrower cash or loan proceeds.
- What must occur before the related advance.
- Who owns the request and any follow-up.
Review that plan with the people responsible for construction and cash management. Resolve differences before the first payment becomes urgent. Cash that is committed but not yet reimbursed is part of the liquidity picture, too.
The Forward Motion View
A useful financing discussion includes the cash needed to execute the project after closing. Bring your construction schedule, anticipated payments and funding questions, including what your first construction draw will require, into that conversation early. It is one more reason The Best Construction Loan Isn’t Always the Cheapest One: how the draw process works matters as much as the quoted rate on construction financing.
Planning a build? Submit your deal with the market, project type, current stage and anticipated start date, and tell us your biggest question about funding timing. Or schedule a consultation to begin a project-specific conversation about your financing needs, and explore the full range of capital programs built around builders.
Forward Motion Insight // 014. Our recurring editorial series exploring residential construction finance, capital markets, and the business of building.
