Understand the Draw Sequence
A draw is a release of committed construction funding after specified conditions are met. It can support renovation or new construction, but the procedure depends on the loan agreement. Common steps include eligible work, a borrower request, documentation review, inspection and disbursement. Some programs allow defined advances; others principally reimburse completed work.
The approved budget organizes what can be funded. Each line should correspond to actual work or eligible materials. A contractor’s payment schedule may not match the lender’s schedule, especially for deposits or stored materials. Compare both before signing so the investor understands what must be financed from working capital.
The full commitment is not cash available immediately. Equity-first rules, maximum advances, retainage and conditions precedent can restrict each release. Identify who submits requests, who schedules inspections and what cutoff times apply. Estimate processing time conservatively rather than building a plan around the fastest possible turnaround. A draw procedure also does not replace construction management: the borrower remains responsible for contractor performance, budget control and local compliance. A good sequence matches documented progress with funding while allowing enough cash to continue work during verification. Understanding the sequence before closing prevents avoidable disputes over who pays the contractor first.
Worked example
A $60,000 rehab holdback covers three $20,000 work packages. Under a hypothetical reimbursement structure, the borrower pays the first package before requesting its draw. Even though $60,000 is committed, the project initially needs at least $20,000 working capital plus fees and a delay buffer.
Mini glossary
- Draw
- Release of funding under construction loan conditions.
- Holdback
- Committed money reserved for future work.
- Working capital
- Available cash for near-term project obligations.
Put it into practice
Put contractor payments and lender releases on the same timeline. Identify every deposit or expense due before reimbursement. Ask which advances, if any, are permitted and when borrower equity must be invested. Compare the largest interim cash need with truly available funds after closing.
Recommended reading
Use these primary sources for context. Individual lender requirements can change; confirm the current program for your transaction.