Glossary › Glossary
A draw schedule is the structured plan for releasing a hard money loan's rehab holdback in stages as renovation milestones are completed and verified. Instead of receiving all renovation funds at closing, the borrower draws money down as each phase of work is finished and inspected. Draw schedules protect both the lender and the borrower by tying capital disbursement to actual construction progress.
A draw schedule breaks the total renovation holdback into tranches, each tied to a specific construction milestone. A common fix and flip draw schedule might look like:
| Draw | Milestone | % of Holdback |
|---|---|---|
| Draw 1 | Demo, site prep, foundation work complete | 20% |
| Draw 2 | Framing, roofing, windows/doors complete | 25% |
| Draw 3 | Mechanical rough-ins (HVAC, plumbing, electrical) complete | 20% |
| Draw 4 | Insulation, drywall, interior rough finishes | 20% |
| Draw 5 | Final finishes, landscaping, punch list complete | 15% |
Exact percentages and milestones vary by lender and project type. Ground-up construction loans have more detailed draw schedules reflecting the phases of new construction.
The process for releasing each draw:
Draw processing time is one of the most important lender selection factors that borrowers overlook. A lender who takes 10 business days to process a draw creates a serious cash flow problem for a borrower running an active renovation.
Processing timelines vary significantly:
If a borrower needs to pay contractors weekly and the lender takes 10 days to release draws, the borrower is fronting renovation costs out of pocket and waiting to be reimbursed — which requires significant working capital.
Always ask a lender: "What is your typical draw turnaround time from request to wire?" — not "How fast can you do a draw?" Get the realistic answer, not the best-case.
Some lenders use their own staff to review draw documentation. Others require a third-party draw inspector — an independent company that sends a representative to the property to verify completion before each draw.
Third-party inspections add time (scheduling, travel, report completion) and sometimes cost (the inspection fee may be paid by the borrower, often $100-$200 per draw). They add 2-5 business days to the draw cycle.
For large projects or first-time borrowers, third-party inspections are standard. For experienced borrowers with a track record of completed projects, some lenders do document-only review.
Ground-up construction loans have more detailed draw schedules than fix and flip loans because the milestones are more sequential and the risk is higher (the lender is financing something that does not exist yet).
Typical construction draw milestones:
Each milestone may require both a third-party inspector's approval and a local municipality inspection sign-off before the draw is released.
Before selecting a lender, understand their draw structure:
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