Construction loan draw schedule: how draws and inspections work
Quick answer
A construction loan releases money in stages called draws, not as a lump sum. Each draw is tied to a completed milestone — foundation, framing, mechanicals, finishes — and an inspection verifies the work before the next portion is released.
You pay interest only on what's been drawn, so your payment grows as the project progresses, then converts to full payments at completion or refinance.
A construction loan doesn't hand you the money and wish you luck. It pays out in pieces, as you prove the work is done.
That structure protects everyone, but it also means your cash availability is tied to your build schedule. Understand the draw process and you can plan around it. Ignore it and you'll get caught short paying subs before the next draw clears.
Here's exactly how it works.
Key takeaways
- → Money releases in draws tied to milestones, not all at once — most loans have four to six draws.
- → An inspection verifies each completed stage before the next tranche is released.
- → You pay interest only on the amount drawn, so payments grow as the project advances.
- → Retainage and draw timing both squeeze cash flow — line up a backup so work never stalls.
What a draw schedule is
A draw schedule is the plan for releasing your loan in stages. Each stage maps to a milestone in the build.
A typical residential-scale schedule might release at foundation, framing, mechanicals and rough-ins, drywall and interior, then final completion. Commercial projects follow the same logic with more stages.
The lender sets the schedule with you and your general contractor, based on the project budget and timeline. This is part of how construction loans work overall.
How a single draw gets released
The cycle repeats at each stage. You complete the work, then request the draw.
The lender verifies it — usually with an inspection, sometimes with documentation and photos. Once the stage checks out, the funds release, often within a few business days.
Money may go to you, or in some cases directly to subs and suppliers. Either way, the verification step is what keeps a project from being overfunded ahead of the actual work.
Interest-only during construction
Here's the part that helps your cash flow. You pay interest only on the amount drawn so far, not the full loan commitment.
Draw $100,000 of a $500,000 loan and you're paying interest on $100,000. As more releases, the payment climbs.
When the build finishes, the loan converts to full principal-and-interest payments, or you repay it entirely by selling or refinancing into permanent financing.
Don't overlook retainage
Retainage is money held back from each payment until the whole project is complete, often 5 to 10%.
It's a separate squeeze from the draw schedule, and it stacks on top. You're financing that held-back amount out of your own pocket until final completion releases it.
Build retainage into your cash-flow plan from the start, because it's real money you won't see for months.
Keeping cash flowing between draws
This is where projects actually get into trouble. A draw lags, and suddenly you can't pay the crew for the next phase.
The fix is to have a buffer before you need one. A line of credit covers the gap between requesting a draw and receiving it, so work never stalls.
For larger projects, a bridge can carry costs until a draw or permanent financing lands — eBoost Partners offers bridge construction financing built for exactly that gap. If you're financing the build itself, start with commercial construction loans.
Review your schedule before you sign
Read the draw schedule like it's a cash-flow forecast, because that's what it is.
Check that the release points line up with when you'll actually owe money to subs and suppliers. If a big payment is due before its matching draw releases, you've found a gap to plan for now, not discover mid-project.