What is a 'Disbursement' in construction finance?

A 'Disbursement' in construction finance specifically refers to the actual release of funds in response to a draw request. This process typically occurs when a contractor or project manager submits a request for payment for work that has been completed. The disbursement is a critical aspect of managing project finances, as it ensures that funds are distributed at appropriate intervals, allowing for the continuity of work and meeting project deadlines.

In the construction financing context, disbursements are often tied to specific milestones or phases of the project, such as completing certain work or reaching particular financial targets. This system provides accountability and ensures that funds are only released when they are truly needed, supporting effective cash flow management for both lenders and borrowers.

Understanding disbursements is essential because they directly impact the financial health of a construction project. The careful tracking and management of these funds are crucial for maintaining relationships between lenders, contractors, and project owners.