Do you know the true construction draw process turn times on your construction loans? Typically, lenders mark time on draws starting and ending with what they can control – from the time the request is received to the time the draw is approved.
Lenders using a manual process to manage draws report that it takes 5-7 days to turn around a draw request. While counting time like this is a common practice, it’s actually a limited view of the draw process.
What lenders may not realize is the extent of time before and after a draw that adds up to be a part of the entire draw processing time for their contractors. Considering the contractor’s process into your overall timeline will help:
- Eliminate project delays and get more projects done on time and on budget
- Reduce the risk of liens being placed by unpaid contractors or subcontractors on the project
In this blog, we will look at the timelines for the:
- Lender Draw Approval Process
- Contractor Draw Request Process
- Draw Disbursement and Contractor Payment
- [Infographic] The Real Construction Draw Process Timeline
- How to Optimize Your Draw Process
Construction Lender Draw Approval Process
From the lender point of view, the draw request begins once the paperwork has arrived. It’s this draw request from the contractor that triggers the lender to begin the draw request approval process. This is the point at which the lender begins marking the time and must begin and complete key tasks such as:
- Order the inspection
- Verify documents
- Order title
- Inspection review
- Documents okay
- Inspection approved
- Title okay
- Documents signed
- Draw submitted
Once all tasks are completed, the lender will approve the draw and wrap up their involvement in the draw process. The process from draw request to draw approval typically takes 5-7 business days and is the time frame often cited as the complete draw approval process.
Contractor Draw Request Process
Let’s take a step back. Does the draw process really start when the lender receives the draw request? And is it really complete when the lender approves the draw?
To get a greater understanding of payment turn times, we need to look at the bigger picture, and that starts with the contractor’s activities before and after the lender participation.
Steps the contractor must take before he even gets to the lender:
- Find appropriate form
- Print out the form
- Fill out the form
- Scan the form
- Email form to the borrow for their signature
- Wait for the signature
- Once signed, get the completed draw request form to the lender (Typically by email, fax, or hand deliver)
Many things can delay this process, including working within the contractor, borrower, and bank’s schedules, obtaining signatures and filling out the proper form, and potential printer and scanner technical difficulties. It takes an average of 3 days to get one draw request over to the lender.
Draw Disbursement and Contractor Payment
Add on the 5-7 days the lender needs to approve the draw, then an additional 1-3 business days for payment to finally be received by the contractor. In total, it can take up to 13 days for the contractor to get paid per draw request. And in the meantime, the contractor is cutting checks every week. Subcontractors have to wait an exponentially longer time to receive payment, even up to 167 days according to zlien.
It’s no wonder that projects sometimes go over deadline and budget. With contractors having to wait so long for their draws, they may not be able to maintain this payment timeline and also pay their subcontractors. In the future they will work with lenders who can support a faster process.
View the construction draw process infographic to see the true draw processing turn times:
How to Make your Construction Draw Process 45 Days Faster
In order to support a faster draw turn time, keep projects on track, and gain repeat business from contractors, lenders must turn to technology. Lenders using digital solutions such as Land Gorilla’s Construction Loan Manager can reduce the draw processing timeline from 13 days to 4 days per draw. This means all parties are ahead of the game by 9 days on each draw. Considering that most construction loans have 5 draws, with a savings of 9 days each, in total everyone is benefiting by 45 days.
To make the construction draw process 45 days faster, you must automate your contractor’s payment process before and after your approval.
Land Gorilla’s digital draw process is simple:
- Contractor logs into a branded, mobile-friendly web portal
- Selects budget line items
- Adds required documents
- Sends request for e-signature to the borrower
Form fields are auto-populated, so submitting the request for e-signature takes a matter of seconds. Then the contractor can send the draw request to the lender, all in about 30 seconds. After draw approval, you can issue payment to the contractor via wire or check in just one hour.
Digitizing this process can become a game changer for lenders who want successful construction loan programs.