# How Construction Loan Draws Work: A Guide for Real Estate Developers Canonical HTML: https://capitalpartnerloans.com/blog/new-construction-loan-draw-schedule Source site: Capital Partner Loans How Construction Loan Draws Work: A Guide for Real Estate Developers Construction loan draws are released in stages tied to milestones. Here's exactly how the draw process works and how to manage your budget. Construction loan draws are released in stages tied to milestones. Here is exactly how the draw process works and how to manage your budget. ## How do construction loan draws work? Construction loan draws are staged disbursements of your loan funds tied to specific construction milestones. Unlike a standard mortgage where you receive all funds at closing, construction loans release money in phases as you complete each stage of the build. After you finish a milestone (such as foundation, framing, or mechanicals), you submit a draw request to the lender. The lender sends a third-party inspector to verify the work is complete and meets the approved plans. Once the inspection passes, the lender releases the funds for that phase, typically within 2 to 5 business days. Most construction loans use 4 to 6 draw stages, with each stage representing a major construction milestone. How long does it take for a construction loan draw to be released? The total time from draw request to receiving funds is typically 5 to 10 business days. This includes submitting the draw request with documentation and photos (1 day), the lender ordering and scheduling a third-party inspection (2 to 4 business days), the inspection itself (1 day), and the lender processing and releasing funds after approval (2 to 5 business days). Some lenders specialize in fast draw turnarounds and can complete the entire cycle in 48 to 72 hours from request to funding. Banks and credit unions tend to be slower, sometimes taking 2 to 3 weeks for the full draw cycle. If the inspection identifies issues, the timeline extends until the problems are resolved and a re-inspection passes. ## What happens if your construction project goes over budget? If your construction project exceeds the approved budget, you are generally responsible for covering the overage out of pocket. The lender will not increase the loan amount without a formal budget amendment, which requires documentation of why costs increased and approval from the lender's underwriting team. Some lenders build in a contingency reserve (5-10% of the construction budget) that can absorb minor overruns without requiring a formal amendment. For larger overruns, you may need to deposit additional funds into an escrow account before the lender releases the next draw. This is why experienced developers always include a 10-15% contingency in their original budget and get detailed bids from contractors before closing on the construction loan. ## How many draws are in a typical construction loan? Most construction loans use 4 to 6 draw stages, though this varies by lender and project complexity. A typical 5-draw schedule includes: foundation (15-20% of the budget), framing and roof (20-25%), mechanicals including plumbing, electrical, and HVAC (15-20%), drywall and interior finishes (20-25%), and final completion with Certificate of Occupancy (10-15%). Some lenders offer more flexible draw schedules with additional stages, especially for larger or more complex projects. Others may combine stages or allow custom draw schedules aligned to your general contractor's payment terms. The key is to understand your lender's specific draw structure before closing so you can plan your cash flow around the timing and amounts of each disbursement. Work not complete: The most common issue. If you request a framing draw but the roof is not fully sheathed, the inspector will flag it as incomplete and the draw will be held until the work is finished Deviation from approved plans: If the actual construction does not match the plans submitted to the lender, the inspector will flag it. Any significant changes to the scope of work need to be communicated to the lender in advance Failed municipal inspections: If plumbing, electrical, or structural inspections have not passed, the lender will not release the corresponding draw. Always schedule municipal inspections before requesting a lender draw Budget overruns: If the cost of completed work exceeds the allocated budget for that phase, the lender may require the borrower to cover the overage before releasing the next draw Lien waivers not provided: Many lenders require lien waivers from subcontractors and material suppliers before releasing draws. If your subs have not signed waivers, the draw can be delayed Negotiate payment terms with subs: Many subcontractors will accept 50% at start and 50% at completion, which reduces your upfront cash requirement Open accounts with material suppliers: Lumber yards and building supply companies often offer 30-day net terms to builders with established relationships Maintain adequate reserves: Most construction lenders require 10-15% of the total project cost in liquid reserves. This cash cushion covers the gap between spending and draw funding Sequence draws strategically: Time your draw requests so that you are submitting the next request as soon as the previous milestone is complete. Do not wait and batch multiple milestones together Use a construction line of credit: Some developers maintain a separate line of credit for short-term cash needs between draws, paying it down with each draw disbursement Build in a 10-15% contingency: Unexpected costs are not unexpected in construction. Permitting delays, material price increases, weather damage, and subcontractor issues all add cost. A contingency fund keeps the project moving without requiring a budget amendment from the lender Get detailed bids before closing: The more detailed your construction budget, the smoother the draw process. Lump-sum budgets create disputes during inspections. Line-item budgets with specific costs for each phase make it easy for the inspector to verify completion Align your draw schedule with your GC contract: Your general contractor's payment schedule should mirror the lender's draw schedule. If the lender releases 20% at framing and your GC wants 30% at framing, you have a 10% gap to cover out of pocket Track change orders meticulously: Every change from the original scope needs documentation and lender approval. Undocumented changes can delay draws and create disputes at inspection time Request draws promptly: The sooner you submit a draw request after completing a milestone, the sooner you get funded. Delays in requesting draws extend the cash flow gap unnecessarily ## s payment terms. The key is to understand your lender