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Construction projects can be notoriously hard to manage both in terms of timeframe and budget. In fact, an estimated 69% of projects run overtime.
Draw requests can play a part in helping keep the project on time and on budget. In the construction industry, a draw request is a formalized request for funds disbursed when completing certain phases of the project.
Draw requests are an essential part of real estate development, but they can be complex. In this article, we'll break down what is a draw request, who might need one, the benefits of a draw request, and what they include.
What Is a Draw Request?
A draw request is a formal request for funds. As each stage of a project is completed, money needs to be designated for those phases. The contractor submits the draw request to the project owner or lender.
This document lays out the specific work that needs to be completed and what materials are needed for the project. It’s essentially a roadmap for how the project will proceed. Also, it works to ensure the general contractor gets paid and can front the project.
This document is vitally important, as it ensures that everyone involved in the project understands what’s expected of them and what they need to contribute.
To put it simply, the purpose of a draw request is threefold:
- To ensure that the contractor is being paid for the work they have completed
- To ensure that the project is progressing as planned
- To provide the lender with peace of mind that their investment is being used as intended
Who Needs a Draw Request?
In most cases, contractors submit draw requests to the owner or lender. However, there may be times when the owner needs to request a draw from the contractor.
For example, if the owner is paying for the project out of their own pocket, they may need to request a draw from the contractor in order to keep the project moving forward.
Draw requests are common practice for many general contractors because they need to front the cost of materials and labor. This way, they're reimbursed for their expenses as the project progresses
In the case of the developer managing the project, a draw request is useful because it ensures both the timeline and budget are proceeding as planned.
Benefits of a Draw Request
You'll need a draw request for a few different reasons.
First, as mentioned, it ensures that everyone involved in the project understands their expectations. Second, it helps to keep the project on track by providing a roadmap for how the project should proceed.
Last, but not least, a draw request is often required by lenders in order to ensure that their investment is being used as intended.
What Elements Make Up a Draw Request?
A typical draw request will include the following information:
- The name and contact information of the contractor
- The name and contact information of the project owner or lender
- A description of the work to be completed
- An itemized list of materials needed for the project
- The expected completion date for the work to be completed
- The project budget
Of course, every lender is different. You'll need to check with your lender of choice what is required from them.
How to Go About Procuring a Draw Request
If you're a contractor, the best way to procure a draw request is to submit one to the project owner or lender.
This document should include all of the information listed above. During the application, the contractor and lender will agree on the timeframe and phases. This is referred to as the draw schedule.
Even once a draw request is approved, it's not as simple as receiving the money whenever you ask. Contractors need to complete documents referred to as a draw package.
A draw package is a request for payment that is submitted to the lender or project owner along with the supporting documentation. This might include invoices, receipts, and lien release forms.
The draw package is what actually triggers the release of funds. The contractor will submit this document to the lender or owner, who will then review it and issue a check if everything is in order.
Sending a draw request can be a bit of a hassle, but it's important to make sure that you include all of the necessary information. This will help to ensure that the project is completed on time and within budget.
Some items typically included in a draw package include, but are not limited to:
- Collated invoices and receipts
- Lien releases
- Change orders
- AIA Forms
- Proof of insurance
Advice About Draw Request Timelines
If you're a real estate developer or project manager, you probably have tight timelines. Unfortunately, draw requests aren't always speedy, so it can be helpful to have a plan in place to ensure that you're not waiting around for weeks or even months to get your money.
One common sticking point is collating information on your project. One of the best ways to ensure your draw requests and draw packages are swiftly approved is to use real estate development software to monitor your build.
How to Speed Up the Draw Request Process
Now you know exactly what is a draw request, but how do you go about procuring one efficiently? There are numerous software programs on the market that can help with this.
Northspyre is one of these platforms. We can help leave your planning paper trail behind. Northspyre automates manual tasks like data entry and generates key reports all in one location. From draw requests to future strategies, you can focus on building better.
If you're looking for a way to streamline your draw request process, Northspyre can help. We offer a free demo, which you can easily book online right here.
Tag(s): Real Estate Development
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