Modern technology aims to simplify all processes and aspects of human existence. And the tasks associated with managing the construction draw process are no exception. Given the fact that the construction draw process has been a decades-long time-consuming challenge for lenders and borrowers, construction loan software aims to simplify and speed up the process by automating various processes and allowing relevant parties to monitor the project in real time.
Technological innovation has mostly overlooked this seemingly simple, yet groundbreaking, solution within the construction lending industry. Construction loan software can not only expedite construction draw processing, saving time and money, but it also minimizes human error and prevents data entry duplication. For example, improving draw processing efficiencies on a portfolio of loans through automation leads to a 65% reduction in administrative time, a 4% reduction in points of risk caught in advance, and a 10% increase in incremental interest earnings for lenders. Can Excel do that?
Let’s take a look at how the construction draw process benefits from innovative loan software and how you can reap the rewards.
In this article, we will go over the following:
- Draw Application Processing
- Draw Payment Processing
- Typical Bank Construction Loan Disbursement Schedule
Draw application processing
Creating a perfect or “just good enough” draw request has up until now been a time-consuming, cumbersome task requiring a construction administration services team of professionals along with meticulous planning and preparation. While the premise of the draw application processing hasn’t changed, and the necessary documentation to request a loan disbursement is still extensive, the process itself can now be managed and automated through a centralized platform.
Focused primarily on the management and administration of post-closing loan processes, advances in construction loan software allow the borrowers, lenders, inspectors, and contractors to quickly upload and review documents, monitor approvals, and manage all aspects of the monthly draw process from a single location. The streamlined construction loan management process leads to faster payments to contractors, subcontractors, and suppliers not only helps with labor retention, but it also mitigates risk and leads to a lien-free completion of projects.
Draw Payment Processing
Processing and disbursing draw payments based on construction progress and individual milestones have always been tasks that required direct oversight and manual input from various sources. Lenders approve the construction loan disbursements in stages, as the project moves forward.
Typically on a monthly basis during a project’s construction, the project manager requests draws so they can pay contractors and suppliers to keep the project running smoothly. Both lenders and real estate developers are under pressure to reduce draw processing time - the importance of timely payments has never been more critical as it is in today’s thriving economy as contractors, subcontractors, and suppliers can pick and choose their projects based on the speed of payments. With the help of construction loan software, construction loan administrators can maximize efficiency and relieve the burdens of manual data input by automating these processes. This way, the project thrives under continuous progress, gaining financial support on time throughout the process.
Construction Loan Disbursement Schedule
Disbursement is the simple act of deploying loan funds to the real estate developer and the typical bank construction loan disbursement schedule is set on a monthly basis, per the agreement between the bank and the borrower. Unlike a conventional loan where the money is forwarded in its entirety at closing, the construction loan is disbursed over a period of time, based on the pre-approved schedule of values and draw request schedule.
According to the draw schedule, the borrower will be required to submit a detailed report of the exact achievements in the past month. The report is often backed up with invoices from the trades performing the work and potentially pictures. The bank will ensure the report is factual by sending an inspector to the site for confirmation. If the list of completed tasks satisfies the terms of the agreement, the next payment can be released.
Again, according to the draw schedule, this process will repeat itself until the project has been completed. After the project receives the Certificate of Occupancy, the loan process can move forward to the next stage.
Related: Reviewing a Draw Request
The Construction Draw Process is Finally Manageable
Construction loan management used to be a manual and highly strenuous undertaking that required plenty of time and dedication, always running the risk of encountering a roadblock in any of the stages of the project due to human errors. Construction loan software prevents these mishaps and minimizes manual labor by automating various processes. Now both the borrower and the lender can utilize a mutually beneficial platform that speeds up the entire construction draw process. In turn, the efficiencies yield more significant monetary savings, less risk, and maximize effectiveness and efficiency in the field.
About Contract Simply
Contract Simply is the most user-friendly and efficient construction loan management software in the world. It's a fresh and more efficient way to tackle construction loan management and it cuts days from the construction draw process while ensuring compliance and reducing risks for everyone involved.