In a construction loan, which party typically withholds retainage from each draw?

• A. Borrower
• B. Contractor
• C. Architect
• D. Lender

Answer: (D)

Retainage is a holdback on progress payments intended to protect the lender’s security and ensure the project is completed properly. In a construction loan, funds are disbursed in draws to the borrower, but a portion from each draw is withheld by the lender as retainage. This reserve stays in place until milestones are reached, work is inspected, and required lien releases are obtained. The idea is to have funds available to cover unfinished work, punch-list items, or potential issues with subcontractors, so the lender isn’t left financing a project that stalls or leaves defects unresolved. Once all conditions are satisfied, the retainage is released to the contractor. The architect certifies progress but does not hold back funds, and the borrower manages payments to the contractor; the retainage is specifically a lender-held safeguard.