When you finance new construction or a major renovation, the lender doesn't hand over the full loan amount on day one. Instead, funds are released in stages as the project progresses—a system called a draw schedule. Understanding how this works keeps your project on track and avoids surprises when the builder asks for money.
How the draw schedule works
A construction loan is structured around measurable phases of work. Most lenders define four to six standard draws tied to physical milestones: foundation completion, framing, mechanical rough-in (plumbing, electrical, HVAC), drywall, and final completion. Some add intermediate steps for roofing or exterior finish.
The builder submits a draw request—typically a sworn statement itemizing completed work and outstanding invoices. The lender then orders an inspection. An independent inspector or staff appraiser visits the site, verifies that the described work is actually done to code, and reports back. Only after that confirmation does the lender release funds, usually within a few business days. This inspection-verification loop protects you: it ensures money goes out only for work that exists.
Holdback percentages and retainage
Most lenders hold back a percentage of each draw—commonly ten percent—as retainage. That holdback accumulates through the project and is released at final completion and after any lien waiver periods expire. The mechanism gives you leverage if defects surface or if subcontractors file mechanics' liens. It also ensures the builder has an incentive to finish punch-list items rather than walking away early.
Some programs release the holdback earlier if the borrower and builder agree and local lien law permits. Always confirm your lender's retainage policy in writing before you start.
What happens when requests don't match reality
If a builder requests funds for framing but the inspector finds only foundation work complete, the lender will approve payment only for the verified stage. The gap creates a cash-flow problem for the builder, which is why reputable contractors coordinate draw timing carefully and keep meticulous photo documentation.
Borrowers sometimes ask whether they can accelerate a draw to help a contractor buy materials. Lenders almost never do this—the entire system depends on pay-for-performance. Advancing money before work invites fraud, cost overruns, and abandoned job sites. The Alliance take: if your builder can't finance materials through trade credit or a separate line, that's a red flag about their capitalization.
Practical takeaway
Draw schedules exist to synchronize money and progress. Before you break ground, get a written schedule from your lender showing the draw phases, inspection requirements, holdback percentage, and typical turnaround time. Share that document with your builder so everyone operates from the same roadmap. Transparency at the front end prevents disputes when the concrete truck is waiting and the funds haven't hit the account yet.
Ready to explore construction financing? Start an application and talk through the draw process with our team.