The hard money draw process is the part of private lending that almost nobody explains, and it is the part that does the most work. Investors ask about rates, terms and lien position. Those matter. But the mechanism that decides whether a renovation loan ends well is quieter than any of them: the money goes out in stages, and each stage is released only after somebody has physically looked at the work.

Here is how it runs at 890 Capital, and why it is worth understanding before you put capital into any private credit fund.

The money does not all move at closing

A bridge and rehab loan has two parts. There is the purchase money, which the borrower needs on the day they buy the house. And there is the renovation money, which they need over the following months as the work gets done.

At closing, only the first part moves. The renovation portion stays with the lender. On an average loan in our book of around $340,000, that can mean a meaningful share of the facility sitting undisbursed on day one.

This is the single biggest structural difference between a hard money loan and a lump-sum loan. A borrower who receives the whole amount at closing has every incentive to be optimistic about the schedule. A borrower who receives it in stages has to produce work before the next tranche arrives.

The hard money draw process, stage by stage

1. The borrower completes a stage of work

Framing. Roof. Mechanicals. Drywall. The exact stages depend on the scope, which is agreed line by line during underwriting rather than invented later. A scope with no slack in it is a warning sign we look for before a loan is ever approved.

2. The borrower submits a draw request

The request names the stage, the amount and the invoices behind it. It is a document, not a phone call.

3. Somebody goes and looks

This is the step that carries the whole structure. A person stands in the house and answers one question: did the work in the request actually get done? Not an appraiser's opinion from three months ago. Not a photograph. Somebody in the property.

Most of our book sits in Charleston, Berkeley and Dorchester counties, which is not an accident. An inspection you can do in twenty minutes is an inspection that happens on schedule. We lend outside the tri-county selectively, and when we do the bar goes up rather than down, precisely because proximity is part of the control.

4. The stage is released, or it isn't

If the work is done, we fund that stage. If it isn't, we don't, and instead we have a conversation about why. That conversation, early and repeated, is worth more than any covenant.

5. Repeat

Five or six times over a six to nine month loan. The money follows the work. It never leads it.

Why this matters more than an appraisal

Investors tend to anchor on the appraisal, because it produces a number and numbers feel solid. An appraisal is one person's opinion of one property on one day, formed before any work started.

A draw inspection is a different kind of evidence. It is repeated, it is current, and it is tied to money that has not yet left the building. Five inspections over six months tell you considerably more about whether a project is real than a single valuation does.

The two work together. The appraisal and the after-repair value set the lending limits at origination. The draw process is what keeps those limits honest while the loan is live.

What it means for the equity cushion

We cap loan-to-value at 75% and the book averages in the mid-60s. That cushion is set on the day the loan closes, against the value of the property as it stands.

The draw process is what stops that cushion from quietly eroding. If renovation money were released up front and the work never happened, the loan balance would climb while the property stayed exactly as damaged as it was at purchase. Staged funding means the balance and the condition of the asset move roughly together. The security keeps pace with the debt.

That is an unglamorous mechanic. It is also the reason a first-position mortgage on a renovation project is a defensible thing to hold rather than a hopeful one. You can read more about how we put capital to work on our Easy Cashflow page.

What goes wrong, and how the process surfaces it

The most common failure in a renovation loan is not fraud and it is not a market turn. It is a budget that assumed nothing would go wrong, meeting a house that had other ideas.

The draw process catches that early. A borrower who comes back for the second draw with the first stage half-finished is telling you something in month two rather than month eight. At that point the options are still wide: extend the schedule, restructure the terms, bring in a different contractor, or in the worst case stop funding and work out the position while the equity cushion is intact.

Loans go late. Ours do, like every lender originating at any real volume. The question is never whether a borrower will miss. It is how early the lender finds out, what position they are in when they do, and whether there is undisbursed money still on the table. Staged funding improves all three.

Questions worth asking any private lender

If you are evaluating a fund that lends against renovation projects, the draw process is a productive thing to ask about:

• Is renovation money released in stages, or disbursed at closing?
• Who performs the inspection, and are they employed by the lender or by the borrower?
• Is the inspection physical, or documentary?
• How many draws does a typical loan have?
• What happens when an inspection fails?

A lender who answers all five without hedging is telling you something about how the portfolio is run. So is one who cannot. The SEC's investor education site has a useful primer on evaluating investment risk that is worth reading alongside any set of fund documents.

The short version

Since April 2024 we have closed 228 loans and funded about $77 million, averaging around $340,000, all in first position, with loan-to-value capped at 75%. Ninety-five of those loans have already run the full cycle: bought, renovated, sold or refinanced, capital returned.

The draw process is a large part of why that cycle completes as often as it does. It is not clever and it is not fast. It is a person in a house, five or six times a loan, asking whether the work got done.

Recent updates from the fund are in our news section, and accredited investors can request investor access to see the documents.

For accredited investors only. Past performance does not guarantee future returns. See 890capital.com for full disclosures.