A draw schedule is the structured timeline that governs how and when a construction lender disburses loan proceeds to the borrower during the construction period. Rather than funding the entire loan balance at closing, the lender advances funds in increments — called “draws” — as the borrower completes predefined construction milestones. Each draw request typically requires third-party inspection, budget reconciliation, lien waivers from subcontractors, and documentation that the project remains on schedule and within budget. The draw schedule aligns the lender’s capital exposure with the actual value being created, protecting against the risk of funding a project that stalls before completion.
How It Works in Practice
Draw schedules are where the theory of construction lending meets the reality of job-site execution. Delays between draw requests and lender approvals can create cash flow gaps for the borrower, which is why experienced developers maintain working capital reserves or lines of credit to bridge timing mismatches. Lenders typically hold back a retainage (often 5-10% of each draw) until substantial completion, and they may require the borrower’s equity to be fully contributed before any loan draws commence — a structure known as “equity first.” If construction costs exceed the original budget, the lender will usually require the borrower to fund the overage from equity before releasing the next draw. Tracking draws against the original budget is critical; cost overruns discovered late in the project can create serious capital shortfalls. LoanBoss helps developers and lenders track draw-by-draw progress against budget projections across multiple construction projects simultaneously.
Related Terms
Part of the LoanBoss CRE Debt Glossary. For hedging-specific terms, see Pensford’s resources.