Our Orlando construction lawyers believe that the average contractor is quite familiar with the potential disputes that could arise during any given construction project. One of the areas contractors could experience a dispute in is with the financial institution that is backing their construction loan. This could be concerning misleading loan agreements or loan repayment options. This could also be regarding the draw process, which is an often overlooked aspect of construction lending. Read on to learn about the potential risks associated with draw requests. Read part two for ways you can avoid a draw request dispute.
What is a Draw Request Dispute?
Large construction projects require the backing of financial institutions. When accepting a formal agreement from a lender, it’s important that you understand the terms. A stipulation of the loan is that funds will not be disbursed in their entirety, rather, the funds will be released at predetermined stages of the project. This limits the financial institution’s risk. There are times when a draw request dispute may arise which will expose contractors to several risks.
Draw request disputes can be an expensive hindrance for contractors. This is why construction lending requires a high degree of diligence to lessen the following risks:
Construction projects are time sensitive. A draw request dispute will only push back the project timeline further.
Draw disputes also lead to the contractor owing more interest on the loan even when in dispute.
In the midst a draw dispute, funds are not disbursed to laborers who will then stop working on the project.
A draw request dispute halts the progress of the project which only leads to more costs due to remobilization of the project.
A worst case scenario is losing the loan altogether. The contractor will then have to find a new lender to fund the project.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.