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A Deep Dive into Construction Loan Draw Schedules

Yancy Lassiter
Published Jun 22, 2024

Construction projects are expensive, complicated undertakings that involve several teams of people, from architects and designers to contractors. This complexity makes it almost impossible (not to mention risky) to pay people lump sums for their work. Instead, smaller payments are made as a job progresses.

Because owners typically don’t have the cash to finance a project upfront, they rely on banks or other third-party lenders to fund their vision. Of course, it’s not as easy as simply asking for money. To get these funds, owners and contractors have to submit a construction loan draw schedule, which outlines when money will be requested.

Keep reading to learn how to navigate construction draw schedules and their effect on your cash flow as a contractor.

Key Takeaways

  • A construction draw schedule outlines when project funding will be requested from a bank or other third-party lender. The schedule is typically broken down into project milestones or stages.
  • An effective loan draw schedule facilitates accountability, better risk management, and better financial management throughout the life of a project.
  • Since all key project stakeholders work together to create the draw schedule, collaboration and good communication are a must.

What is a Construction Draw Schedule?

A construction draw schedule is a financial roadmap, outlining the payment plan for a project. These plans are normally broken down by progress milestones.

When funds are needed from the lender, the owner will submit a draw request, which facilitates the movement of funds from their construction loan.

Along with the architect’s drawings and the contract itself, the loan draw schedule is one of the most important documents on any project. Without it, no one gets paid. Needless to say, it’s crucial you understand the details of the construction loan draw request process so you can keep better track of your cash flow and maintain profitability on every project.

How Construction Loan Draw Schedules Work

Construction draw schedules are developed with input from the lender, project owner, general contractors and subcontractors. In other words, they’re everyone’s responsibility on a project — the more you’re able to collaborate with key stakeholders, the smoother the process will go.

Usually, construction loan draw schedules are written around clearly defined project milestones that represent significant stages of the construction process. These milestones are often listed and billed as a percentage of the project’s total quote and frequently feature an even distribution of payments for the completion of certain hard costs, job phases, and soft costs like:

  • Site development
  • Framing
  • Rough-in
  • Trim-out
  • Final completion
  • General requirements
  • Loan interest reserve
  • Contingencies

Here's what a draw schedule could look like:


More detailed draw schedules might break down trade-specific tasks, including plumbing, electrical, and HVAC. What’s more, well-structured draw schedules also account for retainage amounts withheld throughout the project, ensuring any held-back funds are ultimately paid as agreed upon.

Factors Influencing Draw Schedule Development

Every draw schedule works a little different, and several factors can influence how one is structured. Here are a few examples:

  • Project scope and complexity
  • Project timeframe
  • Budget projections
  • Contractual obligations

Regardless of these factors, draw schedules should always align with specific project milestones and cash flow requirements. For more straightforward or shorter jobs, the draw schedule could be as basic as four or five general milestones with evenly distributed payment percentages. For larger projects though, construction draw schedules generally require more detail and a much more granular breakdown of payments.

How Funds Are Released

You’ve got a draw schedule - now what? Once funds are needed, the project owner will submit a construction loan draw request: a bundle of documents and forms that provide evidence to the lender that work is being performed, along with associated construction costs for each milestone.

A loan draw request bundle will normally include:

  • Detailed invoices and receipts supporting work expenses and related material costs
  • The project’s updated schedule of values
  • Change orders
  • Lien waivers

Once the lender receives this request, they’ll typically order a job site inspection to verify construction progress, then they’ll release funds. With those funds now flowing downstream, payments can start to be made.

Why You Should Care About Draw Scheduling

Construction projects need meticulous planning to be successful, both on-site and off it. In this sense, the construction draw schedule is an incredibly valuable tool, not just for owners, but for everyone involved on a job.

A well-thought-out and structured draw schedule that everyone agrees upon can improve:

Project Accountability - Since payments are only released after milestones are reached, everyone is incentivized to do quality work on time as the project progresses. With everyone clear on what constitutes a milestone, project status and payment schedules become much more transparent.

Project Budget Management - When done well, a construction draw schedule will help stakeholders track and manage spending to maintain a positive cash flow and avoid overruns in the budget.

Risk Management - There’s a reason everyone isn’t paid in a lump sum at the end of a project. By dividing up payments by milestone, projects can more easily accommodate change orders or unforeseen delays without the fear of funds drying up. Additionally, this structure adds a more realistic flow for all involved to pay for labor and materials.

Stakeholder Communication and Collaboration - The draw schedule plan helps lay the groundwork for consistent, clear communication between contractors and the owner.

5 Best Practices for Creating an Effective Draw Schedule

Once you sign onto a project, you’ll work closely with the owner and other contractors to build a loan draw schedule. While every project is different, following a few key practices will help streamline the process so you can keep the momentum moving forward.

1. Plan everything: Since payments are tied to project milestones, these milestones need to be planned to the T, including all of the logistics on how stakeholders will move toward each milestone.

2. Communicate consistently: Owners need to communicate consistently with lenders, and contractors need to communicate with owners to maintain a good circle of dialogue and feedback. If there’s ever a doubt or question about something, don’t wait to ask for clarification.

3. Make contingency plans: Every project has its fair share of unknowns. Make sure you account for those in your plans. No one wants their payment on hold because a milestone can’t be reached on time.

4. Clearly define each milestone: Speaking of milestones, the more detailed you can be, the better. When defining key progress stages/milestones, assign a clear payment amount or percentage due upon completion.

5. Align the draw schedule with your schedule of values: On most construction projects, your loan draw schedule should closely mirror the SOV. This way, you’ll always know the amount of cash needed, and when.

Navigating Changes to the Draw Schedule

Your construction draw schedule is a living document. When things happen, and milestones need to be shifted or changed, that document can be modified.

The trick here is over-communication. Staying in touch with the owner, lender, and other stakeholders is critical to maintaining financial transparency, preventing or mitigating disputes or delays, and avoiding the inevitable trickle-down effect of late payments. When delays do happen, being upfront will help maintain and even improve these relationships over time. Simply put, bad news doesn’t get better if you wait to share it.

Ensuring Compliance and Financial Control

Throughout the construction loan draw schedule process, proper record keeping, accurate job costing, and staying true to contractual obligations and loan agreement will help you maintain financial control and compliance.

When in doubt, document it. When it comes time to submit payment requests, the more “proof”, the better. Invoices, receipts, and an updated schedule of values are the minimum when it comes to bundling your payment request. If any change orders have been submitted, make sure to properly communicate that with the owner as well to avoid any payment disputes or delays.

Last Thoughts

In the construction industry, a carefully structured draw schedule can make the difference between surviving and thriving on the job. When managed effectively, you’ll build better working relationships, keep progress moving forward, and get paid on time.

Need help managing contractor payment schedules? We’ve got a guide for that too.

Yancy Lassiter

Yancy Lassiter, a CPA with a degree from the University of Texas, has 12 years under his belt as a Controller and CFO in the construction industry; he’s your go-to guy for finance in the building industry.

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