Residential Construction Financing

I am a homeowner planning a major home renovation project and after talking with several contractors I have settled on one that I trust and who checks out in terms of customer references, history of similar work, supplier checks, etc. Due to cost of construction, I'm stuck with a custom construction loan which has some nice features for me (one closing, interest only payments during construction, an attractive fixed interest rate after completion, etc), but (surprise!) my contractor is having trouble with a couple of their policies.
First, the lender wants to perform an initial and a couple of progress credit checks on the contractor's personal finances. They say that this is to insure that funds are not being diverted from the project to his personal accounts. The contractor says that he has nothing to hide, but that his personal business is just that, and that it is only reasonable for the lender to perform credit inspection on his fully formed corporation but not his personal finances. He is protective of his personal credit history and score.
Second, the lender will not allow draws on the loan prior to completion of work. This means that there does not appear to be a mechanism for the contractor to access funds prior to construction for ordering materials or pre-paying his subs. He says 50% is typical to mobilize them and lock them in for the project.
Who is being reasonable on these issues? Is the lender following common practice? Are there any contractors out there who have run into these missues, and if so did you walk away from the project or were you able to work through them?
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That one sounds bogus. It sounds like whomever you've gotten your loan from is particularly naive about this type of lending.

You should have a clause about procuring materials and "completion of work" payments.

No.
I'd seek out a different lender. Either they're clueless, or they are trying to play games.
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