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How Construction Loan Software Fast Tracks the Construction Draw Process
Contract Simply is now Rabbet. We’re the same company – just with a new name – building the only intelligent construction finance platform. The content of this post has been preserved with the Contract Simply name.
In the modern world, there is no more need for borrowers to wait months for their draw requests to move through the construction draw process before receiving payment. Just as there is no need for construction loan manager at the bank to lose sleep over handling the paperwork and monitoring the ins and outs of construction loan management. Construction loan software fast tracks much of the work currently done manually.
What is a draw request after all? A draw request is a package of documents including invoices, receipts, PDFs, emails, conditional lien waivers and more submitted by the builder or borrower on a regular basis to “draw” funds from a construction loan. The draw requests support and validate completion of an agreed upon amount of work and include invoices from subcontractors and suppliers expecting quick draw processing and payments. Once payment is released, unconditional lien waivers must be signed, and the project can continue to the next phase.
Until as recent as 2017, administering construction loans required numerous parties and was time-consuming, cumbersome, and prone to human errors. Construction loan software is now making the entire process easy to manage, monitor, and complete in record time without encountering risks due to human errors or from the dreaded mechanic’s lien.
Actual reductions in draw processing time from customer using our leading software for construction lenders.
Here’s how construction loan software fast tracks the construction draw process.
Pieces of a Draw Request
The construction loan draw process consists of three major parts:
- Collecting data and documentation
- Obtaining approvals
- Distributing payments
Each of these parts is crucial in ensuring a smooth construction project from start to finish in which the borrowers, contractors, and the lenders are satisfied, coexisting in harmony.
But harmony is sometimes an elusive concept in a world where these tasks involve countless labor-hours, manual data entry and inspection, and of course, the risks of someone somewhere making a mistake that can bring the entire project to a halt. Before we get into the details of how loan administration software eliminates these problems, let’s take a look at just how long the journey from draw submission to payment really is.
Life of a Draw Request
The life of a draw request is a long and arduous one. And unsurprisingly so, as the invoice has a long path to traverse from the moment the subcontractors submits one to the moment they actually receive payment.
In fact, the average engineer and contractor can wait as much as 84 days before getting paid for their services. That’s a long time, and it doesn’t do much to optimize the productivity or efficiency of the project. “Why does the construction draw process take so long,” says the disgruntled contractor?
Draw Requests need to be Examined Thoroughly
Asking for the lender to pay up and cover the costs of each individual milestone in the project is not as simple as one might think. In fact, the invoice needs to undergo rigorous scrutiny at every step of the process in order to make sure that the work was actually completed, that the work justifies the amount, and that all the supporting documentation is in order.
The invoice will be moving from the subcontractor to the contractor, and then onwards to the developer, and then taken over by the bank, with every party required to confirm that the work for this phase of the project is complete. But that’s not all. You see, the construction process is a fluctuating one, and as such it’s not enough to “simply” confirm that the job is done. Instead, the construction draw request needs to fall in line with the budget expectations.
What’s more, in order to avoid a mechanic’s lien, every invoice needs to pull an unconditional lien release with it, as well as the necessary insurance, bonding, permit, and license information.
How Loan Management Software Helps
As you can tell, the sheer number of interested parties, with the amount of relevant data, along with the time it takes to process, store, and approve everything can be time-consuming and frustrating. However, with the use of a construction loan software and digital draw management, you can aggregate all of the information from those countless emails and PDFs, automate various processes, avoid human error, and ensure your projects move towards lien-free completion.
Digital draw management helps lenders quickly answer common questions including:
- Is this invoice for this project?
- Has this invoice been invoiced before?
- Is the invoice within the contract amount?
- Is the project within budget?
- Does the invoice have the correct documentation?
- Is the project on schedule?
The premise is simple: the problems that would take a human being hours to solve, or questions that would take days to answer, can all be resolved and answered in mere seconds by applying machine learning to the construction loan process. No longer will you need to rack your brain trying to figure out which invoice belongs to which part of the project, or if an invoice has actually been invoiced before, or any other problem regarding the construction draw request ever again.
Efficiency and Error Prevention
Simply put, construction loan management software brings unparalleled efficiency into the mix by storing all documentation, approvals, and payments on a single cloud-based platform that can be accessed by all relevant parties. This allows everyone to stay in the loop, inspect every piece of data quickly, and process draw requests efficiently, thus issuing approvals in record time.
“Streamlining the invoice approval process and providing transparency in the payment flow for construction sites enables projects to reduce risk, obtain better loan terms, secure better contractors, and deliver projects faster. Slow money results in slow projects and critical to that flow is not only improved payment rails but also better document workflow systems.”
Will Mitchell, via PaymentsSource
Regardless if you’re creating invoices, lien releases (which are neatly tied in with every payment), cover sheets, approval documents or other, loan administration software provides the necessary tools and information to complete every task quickly, and more importantly, without a hitch.
Easily Integrated and Knowledgeable
The great thing about smart software is that no matter the complexity of the project, a solution is always just a few clicks away. By gathering all those seemingly endless streams of data into a single, configurable location, construction loan software allows for decisions and authorizations to be made almost immediately.
The software can not only be easily integrated into an existing system or project, allowing all parties to work together, but by leaving a fully automated audit trail for all invoices and stages of the project, you now have every piece of information at hand to meet banking regulatory compliance needs.
Everything you need to Expedite the Process
Loan administration software is easy to use, with emphasis put on flexibility and a practical design for the modern user. Today’s best-in-class solutions offer a variety of value-added services to make getting started a walk in the park.
What to look for when choosing the best construction loan management software partner:
- Do they offer state-of-the-art machine learning and process automation functionality that dramatically cuts workload?
- Does their loan management software include the option for direct payments to subcontractor and risk mitigation measures that link payments with unconditional lien waivers? Better yet, is their solution award-winning?
- Do they offer an onboarding team to quickly transport all of your Excel sheets into the cloud which, by the way, should be scaled securely with your business?
- Do they have an oversight team that coordinates efforts between the system and borrowers?
- Do they have a 24/7 product and technical support team ready to keep you running without breaking a sweat?
- Do they offer guides and tutorials within a customer knowledge center?
In Conclusion: Intelligent Loan Software Wins the Day
In a world where maximizing ROI while minimizing time and other resource consumption is the name of the game, no one can afford to wait 84 days to process something that should be approved in a matter of minutes. After all, we all have places to be and things to do. This is where construction loan software plays a vital role in automating tedious manual tasks and expediting the construction draw request process.