Typically, when a general contractor is approved for a construction loan, that does not mean the lender is going to disburse the entirety of the loan at once. The loan disbursement process for construction loans is incredibly involved, and will usually follow a predetermined scheduled based on milestones in the construction project.
Contractors will be required to submit a draw request to the lender for review and approval each time they need to receive a progress payment to fund various stages of the construction.
Any experienced general contractor knows how important it is to receive the money you need for your project when you need it in order to stay on track, on time, and on budget with your schedule.
Thus, a draw request dispute can derail the timing and efficiency of your project as quickly as any issue. You need the money you’ve been promised, and when a lender tries to withhold that money for any reason, it can be ruinous.
In this blog, we have detailed five potential negative impacts that a draw request dispute with your lender can have on your construction project.
1) Timeliness
It will always be a constant struggle to stay on schedule with your construction projects. There is a practically endless list of things that can throw off your timing, and draw request disputes are extremely high on that list. If you don’t have the money you are expecting from the lender on time, most other aspects of your plans will have to be pushed back as well until the dispute is resolved. This not only impacts your reputation, but it can also severely hurt your bottom line when it comes to other costs associated with falling behind schedule, including the following…
2) More interest payments
Delays caused by draw request disputes will force you to pay more interest payments on your loan. That’s more money out of your pocket the longer you have to wait to resolve a dispute.
3) Loss of labor
A lack of funds will prevent you from moving forward with your project, which will directly lead to a costly loss of labor productivity. An unexpected loss in labor productivity can cause your labor costs to skyrocket well beyond what you anticipated.
4) Remobilization costs
There will be unexpected costs involved both in having to cease construction, as well as remobilizing once your draw request dispute is resolved.
5) Failure to continue funding the project
The worst case scenario of a draw request dispute is that the lender will refuse to continue funding the project. Obviously, the weight of this negative impact is pretty clear. No more funding means no more construction, at least until you can find someone else to fund the project.
If you are in the process of negotiating a draw request schedule with your lender, or if you are already facing a draw request dispute, you need an experienced and knowledgeable attorney representing your interests and protecting you from the severe costs and issues associated with a lender’s refusal to pay what you were promised for your project. Please do not hesitate to call the Florida Construction Law Group today.
