What is Draw Period?
The Short Answer
Draw Period explained simply
The Draw Period is the timeframe when you can take money from a line of credit or a loan. Think of it like an open tab at a restaurant. You can order food and drinks (draw funds) during a set time. Once that time is up, the tab is closed, and you can no longer add to it. You then move into the repayment phase, where you pay back what you borrowed, plus interest.
Real-World Example
The Construction Loan Draw
Imagine a builder gets a $500,000 construction loan with a 12-month Draw Period. Over these 12 months, the builder can request funds as different stages of construction are completed. For example, they might draw $100,000 for the foundation, then another $150,000 for framing, and so on, until the 12 months are up or the $500,000 limit is reached. After 12 months, even if they haven't used all $500,000, they cannot draw any more money. They then start paying back the amount they did use.
Why this matters
Understanding the Draw Period is key for managing your finances. It tells you when you can access money and when that access stops. If you miss the window, you might not get the funds you need. It also signals when your repayment obligations will fully kick in.
Always know your draw period end date. Missing it can leave you without needed funds and impact your project timeline.
Always know your draw period end date. Missing it can leave you without needed funds and impact your project timeline.
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