How is a CapEx loan typically drawn down?

A CapEx loan, which stands for capital expenditure loan, is generally drawn down as costs are incurred during a project. This approach aligns funding with the actual expenditures related to the acquisition, renovation, or improvement of long-term assets.

Drawing funds in this manner allows for more efficient cash flow management since borrowers can access capital precisely when needed, minimizing the interest paid on the loan by only borrowing what is necessary at any given time. Additionally, it supports better financial planning as it ensures that the funds are used effectively for specific project costs rather than being tied up unnecessarily.

In contrast, drawing a CapEx loan at the time of project approval means committing to the entire loan amount upfront, which can lead to paying interest on funds that may not be used immediately. Drawing only once the project is complete fails to provide the necessary funds to cover ongoing costs, and accessing the loan at the start of the fiscal year would not align with the specific timings of when costs are incurred throughout a project.