How construction draws work
Loan proceeds are typically released after documented work is completed and inspected. The lender tracks hard costs, soft costs, contingency, change orders and remaining funds to finish the project.
What the budget must include
| Budget item | Purpose |
|---|---|
| Land / acquisition | Site cost if applicable |
| Hard costs | Labor and materials |
| Soft costs | Architect, engineering, permits and professional fees |
| Contingency | Reserve for overruns |
| Interest reserve | If structured into the project |
| Owner equity | Borrower funds required before or during draws |
504 can fit owner-occupied projects
SBA 504 is designed for eligible fixed assets and can support qualifying acquisition, construction, improvement and major equipment projects. A CDC participates alongside a senior lender.
Completion risk matters as much as collateral
A partially completed property is difficult collateral. Banks therefore focus on contractor strength, permits, fixed-price protections, contingency and the borrower’s ability to absorb overruns.
Plan the permanent phase before breaking ground
Understand how the construction loan converts or refinances into permanent debt, what occupancy or completion conditions apply, and whether rates are fixed, floating or reset at conversion.
Primary sources and reference material
Structure the financing around the business problem.
Good borrowing matches purpose, repayment source, maturity, collateral and liquidity. Compare the entire credit structure—not a single rate, speed claim or headline loan amount.