How Do I... Manage A Construction Loan

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Smart Contractor helps you manage your interaction with banks and lending institutions for jobs being financed by construction loans. Here's how it works:

Select Loan Type

If a job is being financed by a construction loan, indicate this in the prompt for Loan Type in the Job Information entry form.

• Select "Fixed Amount" if the loan is for a fixed amount (and the bank will not adjust the loan amount if the construction costs exceed the original estimate).
• Select "Adjustable Amount" if the loan amount can be adjusted if construction costs exceed the original estimate.

If you specify either "Fixed Amount" or "Adjustable Amount" in the prompt for Loan Type, then the program will prefix the item name with a unique 4 digit number when it appears in the:

• Job Listing
• Customer Contract
• Allowance Schedule
• Draw Schedule
• Draw Request
• Invoice

What's The 4 Digit Number For?

Your interaction with a bank for a job with a construction loan works something like this:

• The bank gets a copy of your job estimate.
• As you complete work on the job, you submit Draw Requests to request payments from the bank. The draw requests generated by Smart Contract are AIA standard, and clearly document the payment status  of all job items requested for payment in the current, and previous draw requests.
• Representatives of the bank inspect and approve the items on the payment request.
• The bank cross references the items on the payment request with the items on the original estimate to verify amounts.
• The bank sends you a check (or pays your invoices) for the payment request.

The 4 digit number that prefixes each job item in the reports listed above is unique (within each job). It identifies each job item, and allows the bank to clearly correlate the items listed in each document back to the original job contract.

What If The Loan Is For A Fixed Amount, And There Are Change Orders?

If the loan is for a fixed amount, and change orders occur, then you submit the request for payment to the bank as usual. The request for payment will include the change ordered amounts, but it will also display (following the list of payment request items) any change orders involved in any of the items in the payment request.

In the case of a fixed amount loan, the bank has two options:

• Pay the change ordered amount. If they do this, then the final payment calculated by the job Recap report will be greater than the balance of the loan amount by the amount of the difference for the change order(s). In other words, on the final payment, the bank will only want to pay the balance of the loan amount, which is less the change order amount(s). At that point (when the job is completed), you will have to request a payment from the customer for the change order difference(s). This is easy to do by printing a Change Order document.
  
• Pay the original amount. If they do this, then you will have to request a payment from the customer for the change order difference(s) . This is easy to do by printing a Change Order document.

In either case, as long as you enter all payments received from your customer and from the bank (or made by the bank directly to your subs and vendors), then the final payment calculated by the job Recap report will be accurate.