Most of our Hard Money Loans involve construction holdbacks. I explain to each borrower at the outset how we handle draws, so there aren’t surprises with our borrowers. Here’s a typical script: “I will be holding back $30,000 for repairs based on the construction bid you have shared with me. This means that in addition to the funds needed to close this deal, you will need enough working capital to float construction in between draws. Now I don’t care if you take 1 draw or 10, but we charge $300 per draw inspection. Also, because we’re your lender and not your business partner, we don’t advance the funds for materials, or for your GC to ‘mobilize’ etc.
For example, you might have to wait a few weeks for cabinets or windows to arrive, but I can’t release held-back funds to you until those cabinets or windows are properly installed and become a part of the house.”
Our clients don’t love the draw charge. I do it to protect our time. I don’t care if borrowers take 10 draws because I get to charge them for each one, but if I wasn’t charging for them, clearly I’d prefer just one or two draws!
Here’s what we can do, that banks can’t. If you reach out at 9 a.m. and want a draw that same day, we can make it happen for a typical fix-and-flip loan. As our borrower, you would drive out to the property, and hop on a Google Meet call with me. We will have a meeting of the minds on the percent of work completed and a wire will be sent to you that same day.