Essential Elements of a Draw Schedule that Construction Lenders Should Know (+ Free Template)

In construction lending, projects often end up spanning months or even years. In such a scenario, a well-defined draw schedule isn’t just helpful—it’s essential. It’s the mechanism that ensures funds are released at the right time, tied to tangible milestones, and aligned with the project’s progress. 

Over the years, I’ve seen how the lack of a structured draw schedule can derail timelines, inflate budgets, and even create friction between lenders and borrowers.

So, I’ll walk you through the building blocks of a strong draw schedule—one that balances risk, accountability, and efficiency. Plus, I’ve included a construction draw schedule template to help you get started!

At its core, a draw schedule is a plan for how loan funds are distributed during a construction project. It breaks the work into phases and ties each payout to specific milestones. Think of it as a funding roadmap that ensures money flows in step with the project’s progress.

For lenders, the draw schedule serves two critical purposes:

• First, it keeps the project moving on time by linking funding directly to completed work.
• Second, it safeguards their investment by reducing the risk of overfunding or mismanaging early stages, leaving the borrower adequately financed for the later, often costlier, phases.

From my experience, having a detailed draw schedule isn’t just about managing the money, it’s also about creating accountability. Each milestone builds confidence that the project is on track, protecting both the lender and the borrower from unnecessary risks.

A strong draw schedule acts as a detailed framework that keeps everyone accountable and the project on track. Here’s what goes into making it work:

1. Clear Phase Definitions

Every project has phases, but a solid draw schedule breaks them down with precision. This may include:

• Pre-Construction: Covers tasks like permits, site preparation, and initial design work. These activities set the stage for actual construction.
  
  
• Foundation: Includes excavation, pouring footings, and building the foundation. Key deliverables include inspections and soil stability reports.
  
  
• Framing: Encompasses erecting walls, floors, and roof structures. Milestones may include framework completion or passing a framing inspection.
  
  
• Rough-Ins: Plumbing, electrical, and HVAC installations fall here. Ensure certifications and permits are documented for compliance.
  
  
• Exterior Finishes: Tasks like roofing, siding, and window installation. Verify weatherproofing measures before fund release.
  
  
• Interior Finishes: Flooring, cabinetry, painting, and lighting installations. Confirm materials match approved plans.
  
  
• Final Touches: Landscaping, cleaning, and final design elements. Deliverables include a completed punch list.
  
  
• Retainage Release: Retained funds are disbursed once the project passes final inspections, and all documentation is submitted.

Click Here to Download the Free Draw Schedule Template

2. Schedule of Values (SOV)

The schedule of values is an itemized breakdown of costs for every phase or component of the project, like labor, materials, and overhead. It creates a clear link between the funds released and the work completed. Transparency here is non-negotiable because it’s how lenders and borrowers stay on the same page.

3. Percentage Allocation

To avoid overfunding in early phases and running short later, a percentage of the total loan is assigned to each phase:

• Early Stages: Assign smaller percentages (e.g., 10-15%) for pre-construction and foundation.
  
  
• High-Cost Phases: Allocate larger portions (e.g., 20-30%) for framing and interior finishes.
  
  
• Final Stages: Reserve funds for finishing touches and retainage to ensure quality work.

4. Documentation Requirements

Every draw request should come with supporting documents. This may include:

• Invoices and Receipts: These help match every payment to corresponding work and materials.
  
  
• Updated Schedules: Make sure to include revised timelines for delays or changes.
  
  
• Lien Waivers: This helps you verify that all contractors and suppliers have been paid to avoid disputes.

5. Inspection and Verification

Before releasing funds, inspections are crucial to verify that milestones are met. Independent inspectors or third-party verifications are often the best choice for objective assessments. 

You can also request photographic evidence like photos or videos of completed work for additional documentation. This step is your assurance that the work matches the requests.

6. Retainage

A portion of each draw, typically 5-10%, is withheld until the project is near completion. Retainage is a quality control mechanism encouraging contractors to finish the work to the highest standards. 

So, ensure you release retainage only after final inspections and punch list completion.

7. Lien Waivers

Lien waivers are essential to protect lenders from future legal claims. Every draw request should include waivers from contractors and subcontractors confirming they’ve been paid for their work. 

Conditional waivers are submitted with each draw request, confirming payments are in process. Whereas unconditional waivers are collected after payments are fully cleared.

8. Contingency Fund

No project goes exactly as planned. A contingency fund, usually 5-15% of the budget, covers unexpected costs like weather delays, material price hikes, or unexpected repairs. It’s the safety net that keeps the project moving. 

However, it is important to establish clear guidelines for accessing these contingency funds.

9. Change Order Management

Changes are inevitable, but they need a structured process. Whether it’s a design tweak or a scope adjustment, a clear process for managing change orders is vital. This includes documenting the impact on the budget, timeline, and draw schedule to avoid confusion later. 

Additionally, make sure to draft an approval workflow that defines who can approve changes and under what conditions.

10. Draw Request and Approval Process

A streamlined process for requesting and approving draws keeps the project on schedule. Clearly define:

• Submission Deadlines: Set clear dates for borrowers to submit requests.
  
  
• Review Timelines: Establish quick yet thorough review periods.
  
  
• Criteria: Define what constitutes an acceptable request, such as milestones reached and documentation submitted.