Development finance drawdowns explained
Development finance drawdowns are staged releases of funds during a build project. Instead of receiving the full loan upfront, borrowers draw funds as works progress. The lender uses a monitoring surveyor to verify progress before releasing each tranche.
What a drawdown is
A drawdown is a request for release of funds from the development facility. Instead of receiving the total loan at completion, funds are drawn as construction progresses. Each drawdown is typically certified by the monitoring surveyor confirming that the specified works are complete.
How drawdown schedules work
The lender and borrower agree a drawdown schedule showing the stages of works and funding tranches. For example, foundations might trigger a 10% drawdown, roof structure a further 15%, etc. The schedule is typically based on the cost plan and programme. Some lenders allow flexibility for variations if works progress differently.
Monitoring surveyor role
The monitoring surveyor visits the site before each drawdown to inspect completed works and confirm they match the cost plan. The surveyor certifies the drawdown in a report to the lender. If works do not meet standards or the programme has slipped, the surveyor may delay or reduce the drawdown.
Drawdown timing and delays
Drawdown timing depends on the construction programme and monitoring surveyor availability. Delays can occur if works are incomplete, quality issues are identified or the surveyor cannot attend promptly. Borrowers should plan for potential delays and maintain cash reserves. Communicating with the lender about delays is important.
Retentions and contingency
Lenders typically retain a percentage (often 5-10%) of each drawdown to cover final completion and any snagging works. This retention is released after project completion and final surveyor certification. Contingency funds are also typically retained and only released if approved cost overruns occur.
Interest on drawn vs undrawn funds
Interest is typically charged only on funds that have been drawn, not on the full committed facility. This incentivises the borrower to draw funds only as needed. Some lenders may have a minimum interest charge or may charge facility fees separately. Borrowers should clarify interest mechanics before drawdown begins.
FREQUENTLY ASKED
Frequently asked questions
This varies by lender, but monthly drawdowns are common. Some lenders allow fortnightly or ad-hoc requests.
Delays can affect cash flow and programme. If works are not verified as complete, the surveyor may not certify the drawdown.
Usually not. Interest is typically charged on drawn funds only, not the full committed facility.
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Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting. Commercial finance may be unregulated. Some property finance can be regulated depending on borrower, property use and loan purpose.