Construction Loan Draw Schedule: How Lenders Release Funds

One of the most misunderstood aspects of construction financing is the draw schedule. Many first-time builders assume they receive the full loan upfront. They don't. Construction loans disburse in phases—tied to verified milestones—and understanding exactly how that process works determines whether your project stays funded or stalls mid-build.

What Is a Construction Loan Draw Schedule?

A draw schedule is the structured timeline of fund disbursements throughout your construction project. It specifies which milestones trigger each draw, how much money is released at each stage, and what documentation is required for the lender to release funds.

Draw schedules are not optional—they're a core feature of how construction loans work. From day one of your loan, you and your lender agree on which completion milestones correspond to which payments. That agreement governs your cash flow for the entire project.

How the Draw Process Works Step-by-Step

1. Submit a draw request: You (or your GC) submit a formal draw request with supporting documentation—invoices, lien waivers, and often photos of completed work.
2. Third-party inspection: The lender orders an independent inspection. A licensed inspector visits the site and confirms that the work claimed is actually complete and materials are on-site. This is non-negotiable with virtually all construction lenders.
3. Inspection report: The inspector submits a report to the lender documenting completion percentage and flagging any issues.
4. Lender review and approval: The lender reviews the inspection report. If everything checks out, they approve the draw.
5. Fund disbursement: Funds are wired—typically to your account or directly to your general contractor. Turnaround time is usually 3–7 business days from a clean inspection.

Typical Construction Loan Draw Schedule Stages

While draw schedules vary by lender and project type, most residential and light commercial construction loans follow a structure similar to this:

Draw 1: Closing / Initial Draw (10–15% of loan)

Released at or shortly after loan closing. Typically funds site preparation, demolition (if applicable), and early mobilization costs. Some lenders include a portion of soft costs (permits, architecture) in the initial draw.

Draw 2: Foundation Complete (15–20% of loan)

Released when foundation work—including footings, slab, or basement—is confirmed complete by inspection. This is often the first milestone-based draw and requires a clean foundation inspection report.

Draw 3: Framing Complete (20–25% of loan)

Released when exterior framing is up and sheathed. At this stage, the structure's footprint is visible and inspectors can verify square footage and layout match approved plans.

Draw 4: Rough-Ins Complete (15–20% of loan)

Released when rough mechanical, electrical, and plumbing (MEP) work is complete and has passed municipal inspection. At this stage, walls are not yet closed, allowing inspectors to verify all systems before drywall.

Draw 5: Drywall / Exterior Complete (10–15% of loan)

Released when drywall is hung and finished, and exterior elements (siding, windows, doors, roofing) are complete. At this stage, the building is weather-tight and interior finish work can begin.

Draw 6: Substantial Completion / Final Draw (10–15% of loan)

Released when the project is substantially complete—typically when a certificate of occupancy (CO) has been issued or is imminent. The final draw is often tied to a lien release from the general contractor confirming all subcontractors and suppliers have been paid.

Retainage: Why Lenders Hold Back a Portion

Many lenders withhold 10% of each draw as retainage—a quality control mechanism that ensures the GC remains financially motivated to complete punch list items and final inspections. Retainage is released at project completion after a final inspection and CO issuance.

If your lender uses retainage, factor it into your cash flow projections. You won't receive the full draw amount at each milestone—you'll receive 90%, with 10% held until the end.

Interest-Only Payments During Construction

One key feature of construction loans: you pay interest only on the amount drawn, not the full loan commitment. If your total loan is $1,000,000 and you've drawn $300,000 after the first two milestones, your monthly interest payment is based on $300,000—not $1,000,000.

This significantly reduces your carrying cost during the early phases of construction. As you draw more, your interest obligation grows, but it's always proportional to what's actually been disbursed.

Interest Reserves: How Lenders Handle Payments During Construction

Many construction lenders (including Lendoor) will fund an interest reserve as part of the loan—an amount set aside at closing to cover your monthly interest payments throughout the construction period. This means you're not making out-of-pocket interest payments while your project is under construction; the interest is paid from the reserve.

Interest reserves are calculated based on the expected draw schedule and construction timeline. A project with a 12-month build timeline and an average outstanding balance of $600,000 at a 10% rate would require approximately $60,000 in interest reserve.

What Can Go Wrong With Draws

The draw process is where many construction loans run into problems. Common issues:

• Failed inspections: The inspector finds that work claimed as complete isn't actually done, or materials counted as on-site aren't there. This delays your draw and requires re-inspection after corrections.
• Documentation gaps: Missing lien waivers, unsigned invoices, or missing photos slow the approval process. Lenders need complete packages to process draws.
• Work ahead of draws: GCs sometimes complete multiple milestones before the borrower submits a draw request. This can create cash flow strain on the GC and delay the project if they can't float the costs.
• Draw schedule mismatch: If your actual construction sequence doesn't match the agreed draw schedule, you may need to renegotiate with your lender mid-project.

How to Manage Your Draw Schedule Effectively

Successful construction borrowers treat the draw schedule as a project management tool, not just a financing detail:

• Align your draw schedule with your GC's payment schedule before you close. Your GC needs to be paid on a timeline that matches your draw releases.
• Submit draw requests promptly when milestones are hit. Don't wait—delays in requesting draws become delays in funding, which become delays in construction.
• Keep documentation current. Maintain organized files of all invoices, lien waivers, and inspection reports so draw packages can be assembled quickly.
• Understand the inspection timeline. Most lenders need 3–5 business days between inspection scheduling and fund release. Build this into your project timeline.

Construction Loan Draw Schedules at Lendoor

At Lendoor, draw schedules are customized to each project's scope and timeline. We work with borrowers to establish a draw structure at closing that reflects the actual construction sequence—not a generic template. Our draw turnaround from clean inspection to wire is typically 3–5 business days.

We lend on ground-up construction, fix-and-flip, and mixed-use projects across 45+ states. Loan amounts from $150,000 to $5,000,000+.

Have a construction project ready to fund? Submit your deal at lendoor.com for a 24-hour term sheet.

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Lendoor LLC | NMLS #1997062 | 727 S Hartford St, Unit 220, Chandler, AZ 85225 | This content is for informational purposes only and does not constitute a commitment to lend. All loans subject to underwriting approval.