Construction financing is paid out in draws as work is completed, verified by an independent cost consultant. Done well, it is routine. Done badly, it starves a project at the worst moment. The difference is almost always decided before the first draw.
How a draw works
- The builder submits a draw request with invoices and a progress claim.
- The cost consultant inspects, confirms the work in place and the cost to complete, and reports to the lender.
- The lender funds the approved amount, less the statutory holdback.
- The builder pays trades and the cycle repeats, usually monthly.
The holdback
Provincial lien legislation in Alberta, British Columbia, Saskatchewan and Manitoba requires a holdback, ten per cent of each payment to contractors in Alberta, British Columbia and Saskatchewan and 7.5 per cent in Manitoba, retained for a defined period after substantial completion to protect subcontractors and suppliers. Alberta’s prompt payment rules also set deadlines for paying invoices. Build the holdback into the budget and the draw schedule from day one so it never surprises cash flow.
Where draws go wrong
- A budget without a contingency, so the first change order breaks the cost-to-complete test
- Trades paid ahead of verified progress
- Lien searches not run before each draw
- Interest not reserved, so the project carries its own financing cost out of working capital
Our construction facilities include an interest reserve, a contingency line and a draw calendar agreed with the cost consultant before closing. It costs a few days up front and saves weeks later.
Have a situation like this? Tell us about the deal and a principal will respond within two business days. Cascade lends to businesses only, in Canadian dollars, and every rate we quote is an annual rate.
