Construction draws are disbursed based upon proven progress on the project. When progress has been validated, the Borrower may draw against the budgeted amount for the individual line item.
For example, if the inspector validates that the Borrower has completed 50% of the framing of the project, the Borrower will be authorized to draw up to 50% of the funds allocated to the ‘Framing’ in that budget.
Costs and progress associated with the project are separated into two broad categories: Hard Costs and Soft Costs.
Hard costs: Hard costs are items or progress that an inspector can physically review and inspect, such as foundations, drywall, roofing, appliances and more. A third-party inspector is contracted to periodically visit the site. The inspector compares the approved budget(s) to the actual progress of work for all hard costs. The progress is recorded per budget line item, typically in ten percent increments, and then uploaded to the Portal.
Soft costs: Soft costs refer to intangible items that are not able to be inspected via a site visit. Permits, engineering plans, overhead, general labor, and utility connection fees are all examples of soft costs. Because soft costs can not be inspected, the Borrower must provide proof of payment for reimbursement. This proof must be in the form of an invoice or paid receipt. For discrete costs, such as permit or utility connection fees, the funds will be disbursed to the vendor in full based on the invoicing (but not to exceed the budgeted line item). For ongoing costs, such as overhead or general labor, funds will be disbursed as a percentage of the budgeted line item, based on the overall percentage of hard costs complete.
For example, a Borrower that is overall 30% complete on the hard costs of a project will be authorized to draw up to 30% of their budgeted Overhead costs.