Last month a developer called me, genuinely confused. His sanction letter for 42 crores had arrived three weeks earlier. He had already committed advance payments to two contractors on the strength of it. And his project account was still empty.
His question was simple. The bank has approved my loan, so where is my money?
I have had some version of this conversation dozens of times over the years. The sanction letter feels like the finish line. In reality it is the starting line of a second process that most first-time borrowers do not see coming. The process itself is quick when you are prepared, but it has dependencies that are not in your control, and that is where projects lose precious weeks. I want to walk through it here so you can plan around it.
What does a sanction letter actually mean?
A sanction letter is the lender's formal statement that it is willing to lend you a certain amount, at a certain rate, on certain conditions. Read that last part again. On certain conditions.
The sanction letter is a document of intent, not a transfer instruction. Somewhere in it, usually in an annexure that gets far less attention than the interest rate on page one, is a list of conditions precedent. Nothing moves until every item on that list is closed.
I have seen sanction letters with over forty conditions. The developer I mentioned above had thirty one. He had read the rate, the tenure and the processing fee. He had not read the annexure.
Why is there a gap between sanction and first disbursement?
Because the conditions take time, and most of them involve third parties you do not control.
The common ones in real estate construction finance:
- Security creation. The mortgage on the project land has to be registered. This involves the sub-registrar's office, original title documents, and sometimes consent from earlier charge holders.
- Promoter contribution. Most lenders want to see your share of the project cost, often 25 to 40 percent, already deployed before they release theirs. You demonstrate this through CA-certified statements.
- Escrow account. Construction finance almost always routes through an escrow. Opening one, with the exact signatory and waterfall structure the lender wants, takes its own paperwork.
- RERA and approvals. Registration certificates, sanctioned plans, commencement certificates. If any of these are pending, disbursement waits.
- Insurance and legal. Project insurance assigned in the lender's favour, and a final legal clearance on title.
None of these is difficult in isolation, and here is the reassuring part. Once the sanction letter is in place, the documentation itself normally takes close to six or seven days. Signing, formalities, certificates and declarations move quickly when the borrower's side is ready.
What stretches the timeline is the conditions that depend on external parties. The sub-registrar's office for mortgage registration. An earlier charge holder whose consent is needed. An approval that is still with the authority. Each of these moves at its own pace, not yours, and a single pending item holds the entire disbursement. So the planning lesson is straightforward: identify which of your conditions are external on day one, start those first, and build your cash flow plan around their timelines rather than around the one week the paperwork itself needs.
Why is a construction loan disbursed in tranches?
Here is the second surprise. Even after the first disbursement, you do not get 42 crores. You get the first tranche.
Construction loans are disbursed against physical progress. The lender appoints an independent engineer or project management consultant who certifies how much construction has actually happened. Money is released in slabs against those certificates. Plinth level unlocks one tranche, each subsequent slab unlocks the next, and so on to finishing stages.
This is not the lender being difficult. It is how the product is designed, and honestly, it protects both sides. But it has a direct planning consequence: your cash availability is tied to your construction speed, and any site delay becomes a funding delay automatically.
A developer I worked with on a mid-sized residential project in Pune learned this in his first project. His contractor lost six weeks on excavation because of monsoon complications. The next tranche, which he had mentally allocated to steel procurement, moved six weeks with it. He bridged the gap with expensive short-term money at 21 percent. The lesson cost him roughly 40 lakhs in avoidable interest.
How do you plan cash flow around a draw-down schedule?
Three habits I have seen work, consistently:
Map the draw-down schedule against your payment obligations before you sign. Not after. Take the lender's disbursement stages, put realistic dates against each, and line them up against your contractor billing cycle and land or approval payments. The gaps you find on paper are the gaps you would otherwise discover as crises. If you maintain the kind of rolling cash flow forecast I described in my article on finance systems, this mapping takes an afternoon.
Start the conditions checklist the day the sanction letter arrives. Assign every condition an owner and a date. Mortgage creation and escrow opening should begin in week one, not after everything else is done.
Model your interest during the construction period honestly. Interest starts accruing on each tranche the day it is released, even though your repayment may not have started. You can put your own numbers into our construction loan EMI and interest calculator and see what the moratorium period actually costs. Most people are surprised the first time.
The rate you negotiated also matters less than you think if the money arrives later than your project needs it. I wrote about that trade-off in more detail in the article on why the interest rate should be the last number you negotiate.
What should you do this week?
If you have a sanction letter in hand, or one on the way, do one thing. Open the annexure, list every condition precedent in a single sheet, and mark which ones depend on external parties. Put a name and a date against each. In my experience that one sheet, reviewed weekly, is the difference between drawing down within a week or two of sanction and watching the disbursement drift while your contractors wait.
And if you are still at the stage of choosing between offers, remember to compare draw-down flexibility and conditions, not just rates. Two sanction letters for the same amount can behave very differently once the project starts.
If you want a second pair of eyes on a sanction letter or a disbursement schedule you are planning around, write to us. Reading these documents is a large part of what we do.