Rehab funds are often held back and released in stages as work is completed and verified. You submit a draw request under the provider’s process, and approved funds are then disbursed. The agreement determines whether any money is advanced, what evidence is required, which fees apply and how much cash you need before reimbursement.
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What Happens During a Draw Request?
The provider may require invoices, photos, a completion inspection or other documentation against the approved budget. A request for work not yet completed or outside the agreed scope may need additional approval rather than immediate payment.
Ask whether inspections can be scheduled before every item is complete, how draws are submitted and how disbursement timing is calculated. “Two days” after approval is different from two days after you first ask for an inspection.
How Much Cash Do I Need Between Draws?
Separate Budget Approval From Available Cash
If the first renovation phase costs $12,000 and the provider reimburses approved completed work, you may need to fund that phase before the draw arrives. With a $2,000 approved-cost difference or holdback, the released amount might not cover the entire invoice. Use the actual agreement to model the gap.
Also budget for taxes, insurance, utilities and financing payments while the work proceeds. A funded construction line is not the same as unrestricted cash in your operating account.
What Should I Confirm Before Closing?
- Advance versus reimbursement treatment.
- Inspection and draw fees.
- Minimum request amounts and expected processing time.
- Retainage and final-release conditions.
- How change orders and cost overruns are handled.
Coordinate the contractor’s payment schedule with the lender’s process. Do not promise the contractor cash earlier than the financing can provide it. Keep an updated budget showing original costs, approved changes, amounts paid and remaining work.
Educational information, not a loan offer. Availability and terms depend on the program, property or business, and borrower qualifications. Legal and tax questions should be reviewed with your advisers.