Construction Draw Schedule

A construction draw schedule governs how construction or renovation loan proceeds are disbursed to the borrower incrementally as work is completed and verified, rather than all at once at closing. Lenders typically require third-party inspections and lien waivers before releasing each draw, protecting against cost overruns, incomplete work, and mechanic's lien exposure.

Draw schedules exist because construction and renovation lending carries execution risk that a stabilized permanent loan doesn't: the collateral (the finished building) doesn't fully exist yet, and disbursing all proceeds upfront would leave the lender exposed if the project stalls, the budget is mismanaged, or the general contractor doesn't perform.

A typical draw process requires the borrower or general contractor to submit a draw request supported by invoices and a percentage-complete certification, which the lender (often through a third-party construction inspector or consultant) verifies on-site before releasing funds. Lenders also typically hold back a retainage (commonly 5–10%) from each draw, released only at final completion, to ensure the contractor finishes all punch-list items.

Borrowers should build realistic timing assumptions for draw processing into their project schedule and budget, since draw requests, inspections, and fundings typically take days to a couple of weeks to process — delays here are a common, underappreciated source of construction schedule slippage and cost overruns from carrying costs on undrawn but committed capital.

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