I probably field this question three or four times a month, usually from a builder who just got off the phone with a bank and is frustrated. They’ve got a lot, a set of plans, and a timeline, and the bank wants eighteen months of financials, a pre-leasing package, and a decision committee before anyone touches a shovel. Private capital solves that problem, but it works on its own rules, and almost nobody explains those rules clearly before someone signs. So here’s the plain version: how the money actually gets released, and what it really costs you.
The short version: your loan doesn’t show up as one wire. It comes out in stages called draws, tied to work that’s actually been completed and verified. And yes, private construction money costs more than a bank loan, usually landing in the low double digits annually, but you’re paying for speed and flexibility, not just a rate.
How draws actually work on a build
At closing, you’ll typically get funded for the lot and some initial soft costs. Everything else sits in a control account and releases as the project hits milestones. On a typical single-family or small infill job, that usually tracks the physical progress of the build:
- Site prep and foundation
- Framing and roof dry-in
- Rough-in for mechanical, electrical, and plumbing
- Drywall and exterior finishes
- Interior finishes and cabinetry
- Final inspection and close-out
Before your lender releases money for any of those phases, someone is checking that the work is actually done, usually through an inspection, photos, or a third-party draw report, along with lien waivers from your subs. That’s not the lender being difficult. It protects both of you, because it keeps money flowing at the pace of real progress instead of getting front-loaded. And here in Vegas, where Clark County and City of Las Vegas permitting can shift a schedule by weeks on their own, a lender who turns draw requests around fast is honestly worth as much to you as their rate sheet.
What this money actually costs
Private and hard money construction loans price for risk and speed, so naturally they sit above bank pricing. Right now, ground-up private construction financing tends to land in the low double digits annually, with your exact number shaped by your track record, your loan-to-cost, and how much of the deal is spec versus already pre-sold. You’ll also typically pay origination points at closing on top of that rate.
Two things move the real cost more than the headline number does.
Loan-to-cost
Most private lenders size the loan off total project cost (land plus hard and soft costs), not appraised value. Expect somewhere around 65 to 80 percent of cost, meaning you’re bringing the rest as equity or cross-collateral. A builder with a strong track record and a tight budget lands toward the higher end of that range. A first-timer building spec lands lower.
Interest reserves
Almost every ground-up private loan sets aside money inside the loan itself to cover interest during construction, so you’re not writing checks out of pocket while the property sits there earning nothing. Since interest only accrues on funds you’ve actually drawn, your early costs are small and they climb as more of the budget gets released. It’s convenient. It’s also borrowed money, so remember it adds to your total payoff at the end.
Private capital versus a bank construction loan
The tradeoff is honestly pretty simple. A bank will almost always beat a private lender on rate, but you’ll wait longer, document more, and have less room for an unusual lot or a tight timeline. Private capital costs more, but it can close in days instead of months, it lends against the deal itself instead of your balance sheet, and it flexes when the build inevitably throws you a curveball.
For a lot of the developers I work with, the real math isn’t rate against rate. It’s time. If private financing gets you breaking ground months earlier and lets you hit a selling season instead of missing it, the extra carrying cost is often cheaper than the deal you would have lost waiting on a bank. Run the whole picture, rate, points, reserve, and your exit, before you decide either way.
Bottom line
Draws protect everyone by tying money to real progress, not promises. Private pricing runs higher because you’re paying for speed and flexibility a bank can’t offer. Loan-to-cost plus your interest reserve usually matter more to your actual numbers than the interest rate you see on paper.
Questions I get after this conversation
Can I switch lenders mid-construction if my private loan isn’t working out?
It’s possible but rarely simple. You’d be refinancing an active construction loan, which means a new lender has to underwrite an unfinished project and get comfortable with whatever’s already been drawn. It happens, usually when a relationship sours or timelines blow way past plan, but it takes longer and costs more than getting the first lender right.
Does my personal credit matter if the loan is based on the project?
It still matters, just less than it would with a bank. Private lenders lead with the deal, the location, your budget, and your track record as a builder, but most still pull credit and want to see you’re not walking into other financial trouble that could derail the build.
What happens to unused funds if I finish under budget?
Depends on your loan documents, but typically undrawn funds simply aren’t disbursed and you’re not charged interest on money you never touched. Some loans let you reallocate savings from one line item to a shortfall elsewhere with lender approval, others are stricter about moving money between categories.
How far in advance should I line up private construction financing before I plan to break ground?
I’d start the conversation 60 to 90 days out. It closes faster than a bank once your file is together, but pulling your budget, plans, and comparable exit values together takes real time, and rushing that part is where deals get messy.
Let’s talk through your project
Every ground-up deal in Las Vegas has its own math: lot, budget, timeline, exit. If you’re weighing private capital and want a straight read on how the draws, reserve, and pricing would actually pencil out, call or text me at 702-595-1949, or reach out through the Private Capital page. No pressure, just numbers.
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Beau McDougall, Executive VP of Private Capital, All Western Mortgage (NMLS #2611909). Educational only, not investment or financial advice; all investments carry risk.
