Construction Loan Draw Schedule Explained for Borrowers

A construction loan does not hand you the full amount at closing. It releases money in installments, called draws, as work is completed and verified. Each draw follows the same basic path: you request funds, the work is checked, paperwork is reviewed, and funds are released.

Understanding that cycle helps you plan your cash flow and avoid the delays that stall projects. Specific terms vary by loan, so treat what follows as a general guide and read your own loan documents closely.

The draw cycle

1. The request. You submit a draw request showing the work completed since the last draw and the amount you are asking for, usually tied to the line items of the approved budget.
2. Backup. Invoices, contractor billings and any other supporting paperwork accompany the request.
3. Inspection. An inspector or the lender's representative verifies that the work claimed was actually done and roughly matches the amount requested.
4. Lien and title review. The lender checks that no new liens have attached and that earlier payees have been paid.
5. Release. If everything matches, funds are disbursed to you or, in some structures, directly to the contractor or vendors.

The schedule of values

Many draw schedules are built from a schedule of values: the approved budget broken into stages or line items such as site work, foundation, framing, mechanical systems, finishes and so on. Each draw reports percent complete against those lines. A schedule that matches the way the contractor actually bills makes every draw easier to check. If the budget lines are vague, every request becomes a negotiation.

Inspections

The inspection is the lender's check that the money is going into the building. Make the site ready: accessible, with work clearly visible and the contractor or a representative available to answer questions. Photographs and a short progress note sent with the request help. Do not request payment for materials stored off-site or work not yet performed unless your loan terms specifically allow it.

Retainage

Retainage is a portion of each payment held back until the work is complete or reaches a milestone. It exists to give the owner leverage to get punch-list items finished. Some loans and some contractor agreements include it; the amount and release timing are set by the contract and loan terms, so check both and keep them consistent. A mismatch, where the lender holds back one amount and the contractor expects another, can create a cash gap.

Lien releases

Contractors, subcontractors and suppliers can have lien rights if they are not paid. To protect the lender's position, draws are typically tied to releases from those who have been paid. Collect conditional releases with each request and unconditional releases for payments already received. Missing paperwork from a small supplier is one of the most common reasons a draw stalls. Ask for releases when you pay, not weeks later.

Working capital

Between finishing work and receiving funds, someone has to pay the contractor. Plan for a cushion, whether your own funds or an arrangement with the contractor, so a normal processing period does not stop the job. The loan budget also usually has to be kept in balance: if one line runs over, the lender will want to see how it is covered. Our article on contingency and interest reserve covers that.

Habits that speed draws

• Submit requests on a regular, predictable rhythm.
• Keep one organized folder of invoices, change orders and releases.
• Document change orders in writing and get them approved before the work is done.
• Tell the lender about problems early, such as a delay or a cost increase.
• Match the request to the approved budget lines exactly.

For the bigger picture, read loan-to-construction-cost explained. Our construction program goes up to 90% of construction cost and can convert to a permanent loan at conventional rates on completion.

This article is general information only, not legal, tax or investment advice.

Planning a build and want to know how draws would work? Call (800) 943-1314 or apply online.