Lenders: what do you need to see before you release a draw?

Question

Question for the private and rehab lenders here.

After over 20 years of renovations and turns, I've seen draws go out on a contractor's say-so, a few photos and trust. A recent thread here made a point I keep coming back to: proof of work and proof of payment are two different things. The work can be in and a sub can still lien the property.

Here's how we're building Eyes On the House™ (patent pending) around that, from buy to exit:

1. Buy walk. Room-by-room 360 scans lock in the square footage you bought and roll into a line-item repair scope. You underwrite on a verified rehab budget, not a contractor's guess, and the scope supports your ARV.

2. Each draw. The contractor's locked 360 scans prove the work, and the draw stays locked until conditional waivers for this draw and unconditional waivers for the last one are in, from the GC and every sub and supplier. Retainage is held to the end.

3. Final QC walk, ready to rent or ready to list. Final waivers and release of retainage close the contract. The walk documents any square footage added by the new layout, so you can show what was bought and what was delivered. The 360 tour becomes the listing on day one, for a faster lease or sale.

My questions for the people whose money is on the line:

1. What do you require before releasing a draw today?

2. Do you require lien waivers with each draw, and how much retainage do you hold?

3. Would a verified repair scope at the buy change how you size the loan?

4. Would locked, dated 360 scans tied to that scope replace a site visit, or just sit next to it?

I'd rather build this around what lenders actually need than guess. Straight answers welcome, including "that wouldn't change anything for me."

Rickey Shneyder · Answer

Glad it helped. On smaller private-lender draws, a dated video timeline can carry a lot of weight. Whether it can stand in for a site visit depends on the lender, the size of the draw and how much the lender trusts the borrower.

Where it tends to work:

• Repeat borrowers with a clean track record. Lenders are more comfortable doing desk reviews for someone who has finished projects with them before.
• Smaller draws and early, easy-to-see work. Demo, framing, roofing and windows show up clearly on video. Work hidden behind drywall, like rough plumbing and electrical, is harder to verify. Many lenders still want a permit sign-off or an in-person look before anything gets covered.
• Video that's hard to fake. It should have a timestamp and location data, walk continuously from the street or the house number into each room, and match the line items on the draw request.

Repeat borrowers with a clean track record. Lenders are more comfortable doing desk reviews for someone who has finished projects with them before.

Smaller draws and early, easy-to-see work. Demo, framing, roofing and windows show up clearly on video. Work hidden behind drywall, like rough plumbing and electrical, is harder to verify. Many lenders still want a permit sign-off or an in-person look before anything gets covered.

Video that's hard to fake. It should have a timestamp and location data, walk continuously from the street or the house number into each room, and match the line items on the draw request.

Where it usually doesn't replace an inspection:

• Large draws, or a big share of the loan going out at once.
• First-time borrowers, or any project where something looks off, such as a budget overrun, a schedule slip or unhappy subs.
• Lenders who sell or participate their loans. Their investors or capital partners often require third-party inspections no matter what.

Large draws, or a big share of the loan going out at once.

First-time borrowers, or any project where something looks off, such as a budget overrun, a schedule slip or unhappy subs.

Lenders who sell or participate their loans. Their investors or capital partners often require third-party inspections no matter what.

A lot of lenders split the difference. They take video for routine draws and send an inspector at key milestones like rough-in, drywall and final, or at random. Video also doesn't replace the paperwork. They'll still want lien waivers, a title date-down on bigger draws, and proof that the remaining budget still covers the remaining work.

Rickey Shneyder, Partner, Crux Midwest (commercial loan broker)

Rickey Shneyder · Answer

Bennett, from the commercial and construction loan side, here's what I usually see lenders require:

1. Before a draw goes out: a draw request tied to the approved budget line by line with percent complete, an inspection, and a title date-down to confirm nothing new has been recorded since the last draw. Bank-funded loans almost always use a third-party or in-house inspector. Some private rehab lenders accept dated photos or video on smaller draws, but rarely for the larger ones.

2. Lien waivers: conditional waivers for the current draw and unconditional waivers for the prior one, from the GC and usually from any sub or supplier above a set dollar amount. Retainage on ground-up and larger commercial jobs is typically 5 to 10 percent, released after final inspection, certificate of occupancy and final unconditional waivers. Many fix-and-flip lenders skip retainage and simply fund in arrears instead, so the borrower or GC pays first and gets reimbursed.

3. A verified scope makes the budget review faster and can reduce the contingency a lender asks for, but it rarely raises the loan amount by itself. Lenders still size off the appraisal (as-is and after-repair value) and their own cost review. They also want the loan kept "in balance," meaning if costs run over, the borrower funds the overage before the next draw.

4. Dated scans would most likely sit next to an inspection rather than replace it. Inspectors are also checking things photos don't show well: whether materials that were paid for are actually on site, whether permits and municipal inspections are signed off, and whether the remaining budget is enough to finish the job. Where scans could help is fewer disputes and faster remote sign-off on small draws.

One thing people miss: in some states mechanics' lien priority can relate back to when work first started, so lenders also want proof that no work began before the loan closed.

Bennett Vinson · Answer

Rickey, this is gold. Thank you. You just described our build spec almost line for line, so here's how Eyes On the House™ (patent pending) answers each point.

Hard to fake: every walk is timestamped and location-tagged, starts at the street and house number, moves continuously room to room, and is matched to the line items on the draw request.

Behind the drywall: we add a required pre-cover walk at rough-in, so plumbing and electrical are on dated video before anything gets covered. That's the milestone you said lenders most want eyes on.

Third party: a trained walker records it, not the borrower, which helps on first-time borrowers and on loans that get sold or participated.

Paperwork: in V1.1 the draw release stays locked until the scans are locked and the lien waivers are in, with the remaining budget checked against the remaining scope. Retainage stays locked until the final walk.

Your split-the-difference model is exactly how we see it working: video on routine draws, a site visit at the key milestones.

Would you be open to a 15-minute call? I'd value a lender's eye on it before V1.1 locks, and if it fits, I'd like to talk about piloting it with a few of your borrowers.

Bennett Vinson · Answer

Rickey,

this is the most useful breakdown I've gotten on draws.

Thank you. Your list is close to what we're building into Eyes On the House™ (patent pending), and your last point is the one I hadn't weighed enough.

The way we're approaching it is one dated video record for the whole job.

Before work starts, a pre-work video is locked at closing. If lien priority can relate back to when work first began, that's the proof nothing started early.

Each week, there's a progress walk checked line by line against the scope set at the buy walk. That gives a lender percent complete, materials on site and the remaining budget before a draw goes out. Lien waiver capture is in the works for each draw record.

At the end, a final video shows the house ready to lease or sell, with retainage held until that walk.

Agreed that it sits next to your site visit, not in place of it, and the appraisal still sizes the loan. On the smaller private draws, would a timeline like that be enough to fund without sending someone out?

Bennett Vinson · Answer

Appreciate that, Chris. That's the gap I keep seeing too. The work looks done in the photos, and then a supplier who never got paid shows up after the money's out. When you're on the lending side, do you collect waivers from just the GC, or from every sub and supplier too? And at what point in the draw do you need them?

Chris Seveney · Answer

The one thing I see most people forget about is lien waivers. They are just as important, or more important, than everything else.

Bennett Vinson · Answer

Thanks, and good to see another North Alabama operator in here. Running ahead of the schedule is the best spot to be in on draws. When your lenders have sent a third-party walk versus taking your photos or a text, what made the difference for them? Was it the loan size, how long they'd worked with you, or something else? And have you ever had a draw held up, and what fixed it?

Richard Neese · Answer

Great concept and i'm looking forward to following. I do fix and flip as well as value add buy and hold in North Alabama. I've seen the gamut from 3rd party inspectors, pictures and just a call or text. Granted we usually provide pictures and are most often 10-15% ahead of the draw schedule. Interested to see that responses you get off of the post. Thanks for contributing to our community!

Lenders: what do you need to see before you release a draw?

Lenders: what do you need to see before you release a draw?

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