Manage Draws and Contractor Cash

MODULE 3 OF 4

$12,000 work; $10,800 reimbursed; $1,200 retained

Renovation funds are often released after eligible work is completed and verified. The investor may pay a contractor first, submit a draw request, allow inspection and receive reimbursement later. Some programs permit advances for specific items; others do not. Confirm the actual sequence instead of assuming the lender will fund every deposit before work begins.

Align your contractor agreement with the approved budget and draw rules. Use milestones that correspond to measurable work, clear invoices and a process for approved change orders. Keep evidence of payments and any lien documentation required by the lender or local counsel. A draw can be delayed by incomplete work, mismatched line items or a request exceeding the remaining budget.

The loan’s interest method matters as funds are released. Interest may accrue on the disbursed balance or follow another contractual basis. Verify draw fees, inspection charges, retainage and processing expectations. Do not promise a contractor same-day funding based only on a marketing claim. Update a weekly cash forecast showing beginning cash, scheduled payments, expected reimbursements and a delay buffer. A profitable project on paper needs enough working capital to continue while administrative checks and inspections take place.

Worked example

The first work package costs $12,000. The investor pays it from available cash. A hypothetical lender retains 10% and reimburses $10,800 after inspection. The investor has $1,200 still tied up, plus the next contractor payment. A $15,000 cash reserve cannot be treated as fully replenished.

Mini glossary

Draw: Approved disbursement of construction funds.
Retainage: Amount held back until specified completion conditions.
Lien waiver: Document addressing a contractor or supplier payment claim.

Put it into practice

Create a four-week cash forecast with one delayed draw. Include contractor deposits, inspection fees and retainage. Ask for the lender’s draw checklist and align each contractor milestone with an approved budget line. Document who approves changes before the contractor starts additional work.

Manage Draws and Contractor Cash