Managing construction draws and lender inspections

A construction draw converts a conditional commitment into funded money for particular project costs. The request needs to establish what work occurred, what is payable, what remains to finish and whether the agreement's funding conditions are satisfied. The owner's objective is to make that determination straightforward before invoices become overdue.

Start by separating construction progress from financing eligibility. Work can be necessary and properly performed while requiring additional documents or approval before the lender funds it. Equally, a remaining loan commitment does not mean every invoice is eligible for immediate payment from the loan.

Make the first draw a rehearsal for the full process

Before construction starts, agree on the draw calendar and package with the lender, construction consultant, contractor and title company. Identify who prepares the request, checks invoices, certifies progress, supplies releases and confirms the receiving account. Give every participant the same budget coding and document names.

OCC guidance emphasizes inspection, progress documentation, maintained equity and sufficient funds to complete construction.^[1] Those controls explain why a draw needs more than an invoice total. They are supervisory principles for bank lending; the executed agreement determines the reader's actual conditions and timetable.

Use the agreement to build a checklist. The November 2019 CW Broadway/PNC construction agreement requires an itemized request, contractor forms, applicable invoices, prior-payment evidence, current conditional releases and a change-order log.^[2] These are transaction-specific requirements, not a universal set of forms or deadlines.

Ask which items can be submitted ahead of the formal request and what starts any response period. Determine how corrected requests are handled and whether a partial advance can proceed when one item remains disputed. A contract saying monthly draws are permitted is different from a promise that a draw arrives on the same day every month.

Reconcile earned value, invoices and eligibility

Maintain a schedule of values showing original amounts, approved changes, cumulative work, prior payments, retainage and the current request. Reconcile it with the lender's approved budget. Explain differences between the contractor's categories and the financing categories so a reviewer can trace the same work without guessing.

The lender's consultant may assess both observed progress and remaining completion needs. OCC's construction-monitoring discussion connects physical inspections to design, budget, cost to complete and remaining loan funds.^[1] Photographs and percentage-complete descriptions should therefore connect to a specific scope and budget line.

Identify deposits, stored materials, work not yet installed and disputed costs separately. Ask whether each category is eligible and what additional protection is needed. Do not relabel a deposit as installed work to fit a draw form. If the financing does not cover the item at that stage, include the permitted owner funding or supplier arrangement in the cash plan.

Holland & Knight's Florida practice explanation describes work-in-place certifications, lender inspection and proof-of-payment documentation.^[3] It supports examining these mechanics, but does not establish that every lender prohibits stored-material funding. That question belongs in the actual loan and construction arrangements.

Model the payable amount, not just the invoice face value

Consider a hypothetical $90 million construction commitment. A monthly package contains $3.6 million of hard-cost invoices and $600,000 of eligible soft costs. Assume $400,000 of the hard costs are supplier deposits the loan does not currently fund. The eligible hard costs are therefore $3.2 million.

Assume the loan withholds ten percent of those eligible hard costs, or $320,000. The funded amount is $2.88 million of hard costs plus $600,000 of soft costs, totaling $3.48 million. The figures are invented, including the retainage rate and eligibility rule; they are not current lender terms.

If the construction contract permits the owner to retain the same $320,000 on this work, current payments are $4.2 million less $320,000, or $3.88 million. The immediate outside-cash need is $400,000, representing the supplier deposits. The $320,000 remains a later payment obligation; it is not also an immediate payment in this version of the example.

If the construction contract instead permits only $160,000 of current retainage, payable invoices total $4.04 million. With the same $3.48 million draw, the immediate cash difference is $560,000. It comprises $400,000 of excluded deposits and $160,000 of retention mismatch. The owner must address the timing gap even though the approved overall budget has not increased.

This reconciliation prevents two mistakes: treating every withheld dollar as permanently unfunded, and ignoring a difference between the loan's funding schedule and the contractor's payment rights. At final release, update the schedule so prior owner advances and unpaid retention are not counted twice.

Keep inspection and project responsibility distinct

Identify what the inspector's report actually certifies. The owner's architect, contractor and consultants remain responsible under their own agreements. An inspection used to support a lender advance is not a substitute for the owner's quality-control and contract-administration process.

The PNC agreement separately requires a satisfactory inspection report covering plans, budget, approvals and schedule, along with a title date-down endorsement.^[2] A favorable site report therefore does not by itself satisfy every draw condition. Track legal, financial and physical requirements in parallel.

When observations differ, document the issue in a concise reconciliation: claimed work, observed work, explanation, supporting evidence and the corrected request. Avoid submitting an unchanged disputed number repeatedly. If concealed work or stored materials create the difference, identify a permissible verification method with the relevant professionals.

Update completion funding with each request

Show paid costs, unpaid earned costs, remaining contracted work, pending changes, carry and contingency. Compare them with eligible undrawn loan funds and committed owner resources. The PNC agreement's balancing clause can suspend further advances until demanded deficiency funds are deposited.^[2] Its particular demand period is not a standard for other loans.

A package can be accurate for work already completed while revealing insufficient funds for future work. Treat that result as an early funding decision. Resolve the deficiency through an approved revised budget and identified resources rather than excluding pending changes merely because their invoices have not arrived.

Holland & Knight describes balancing and budget reallocation as separate negotiated construction-loan matters.^[3] Approval to move a line item does not automatically increase the commitment. Keep the amount, use and availability of every funding source clear.

Close the administrative loop after funding

Verify the advance, outgoing vendor payments, released conditions and updated loan balance. Preserve proof supporting the next draw. OCC's July 2026 portfolio handbook lists draws, escrow administration, payment processing and maturity monitoring among servicing functions.^[4] The owner's records should reconcile to those functions rather than stop at the date the request was submitted.

Maintain one owner for the outstanding-items log and one approved version of the budget. Match future inspections and requests to that version. Lender monitoring also includes financial statements and covenant testing, so ensure the draw forecast agrees with the sponsor's available liquidity.^[4]

An effective draw process gives the lender a verifiable funding decision and gives the owner a realistic payment calendar. It should make clear what is approved, what is payable now, what remains conditional and what resources will complete the project.