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On a hard money rehab loan, renovation funds are not given to the borrower upfront. They are held back and released in draws as work is completed and verified. The draw schedule defines how much is available at each stage, what triggers a release, and how quickly funds are wired after approval.
When a hard money lender funds a fix and flip or BRRRR loan, the loan is split into two parts:
The holdback protects the lender. Releasing all renovation funds upfront creates risk — a borrower could walk away, a contractor could disappear, or the work might never get done. Draw-based funding ties the release of capital to verified progress.
Step 1: Borrower requests a draw The borrower notifies the lender that a phase of renovation is complete and submits a draw request — typically via email, an online portal, or the lender's app. The request usually includes photos of completed work and documentation of what was done.
Step 2: Inspection The lender orders an inspection. An independent inspector (sometimes called a draw inspector or progress inspector) visits the property to verify that the work described in the draw request has actually been completed and completed to a reasonable standard.
Inspection turnaround time varies by lender: some inspect within 24-48 hours, others take 3-5 business days. This timing directly affects your renovation cash flow — plan accordingly.
Step 3: Approval The lender reviews the inspection report. If the work is verified, the draw is approved for the amount of completed work (less any retainage, discussed below).
Step 4: Wire Funds are wired to the borrower or directly to the contractor, depending on the lender's process. Wire timing after approval typically ranges from same day to 2-3 business days.
Lenders structure draws in a few different ways:
Budget line-item draws: The holdback is broken into specific budget categories (roof, HVAC, kitchen, baths, etc.). Draws are requested per line item as each category is completed. Provides precision but requires detailed tracking.
Percentage-of-completion draws: Funds are released as a percentage of overall project completion — typically in tranches of 25%, 50%, 75%, and final. Simpler but less granular.
Milestone draws: Defined project milestones trigger each draw (rough-in complete, drywall complete, final completion). Common on larger or more complex projects.
Some lenders hold back a percentage of each draw — commonly 10% — until the project is fully complete. This is called retainage.
On a $60,000 renovation funded in draws, a 10% retainage means each draw releases 90 cents on every dollar of completed work. The final 10% (the retainage pool) is released when the project is complete and a final inspection confirms all work is done.
Retainage protects the lender and incentivizes the borrower to finish the project. Know before closing whether your lender holds retainage and at what percentage.
Most lenders charge an inspection fee per draw — typically $150–$300. If you pull 5 draws on a renovation, you are paying $750–$1,500 in inspection fees over the life of the loan.
Some lenders charge a flat draw administration fee on top of or instead of per-inspection fees. These costs are disclosed in the loan documents and should be factored into your deal analysis.
Running out of contractor cash before the draw is released: Contractors need to be paid to keep working. If your draw takes 5 days to fund after inspection, your contractor needs to float that cost or work stops. Discuss this with contractors before starting — some will work with your draw timeline, others need payment on completion of each phase regardless of lender timing.
Draw denied due to incomplete work: The inspector finds that not all work claimed in the draw request is actually complete. The draw is denied or reduced until the work is finished and re-inspected. This creates delays and a second inspection fee.
Scope creep not covered by holdback: If renovation costs exceed the original holdback budget — which is common — additional draws beyond the original allocation require lender approval. Budget a contingency upfront and disclose it to the lender to avoid surprises.
Final draw delayed by punch list items: Lenders will not release the final draw (or retainage) until all work is complete to their standard. A few remaining punch list items can hold up thousands of dollars. Keep a running punch list throughout the project so the final inspection does not surface surprises.
These questions belong in your lender evaluation process before you choose who to borrow from — not after you are mid-renovation and waiting on a wire.
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