Draw request

How a draw request works

A construction loan isn’t paid out at closing. The lender approves a total and a budget, then releases money in stages, called draws, as the work gets done. A draw request asks the lender to release the next one.

The loan agreement sets the draw schedule. Some lenders pay a fixed share of the loan at each stage, such as foundation, framing or drywall. Others pay against a budget broken into lines, much like a schedule of values, based on the percentage of each line that’s complete. Some lenders also require the borrower to spend their own share of the project cost before loan money goes out.

The borrower, usually the owner or developer, submits the request, but much of the paperwork comes from the contractor. A typical draw package includes:

• The contractor’s invoice or pay application for the period.
• Lien waivers from the contractor and, often, its subs and suppliers.
• An updated budget showing what has been spent and what’s left on each line.
• Photos, and invoices for any materials stored on site.

Before releasing money, the lender usually sends an inspector to confirm the work is in place, and often has the title checked for new liens since the last draw. Funds may go to the borrower, to the contractor, by joint check, or through a title company that manages disbursements. Some lenders hold back a share of each draw until the end, much like retainage.

Draws also come up without a lender. On some owner-financed jobs, especially cost-plus contracts, the contract calls the owner’s scheduled payments draws. The same idea applies: money released in stages as work is verified.

Change orders need extra care on a financed job. The loan budget was set at closing, so added work needs a funding source: the borrower’s own cash, a contingency line in the loan budget, or the lender’s approval to change the budget. Until that’s settled, extra work may not be covered by any draw.

Why draw requests matter to each party

For contractors

On a financed job, your payments can only move as fast as the owner’s draws. The draw schedule, not your contract, may decide when money arrives. If it pays at the end of framing and you’ve been buying lumber for weeks, you are carrying those costs until the lender releases funds.

For homeowners and borrowers

The borrower is responsible for the draw request and for making sure it’s complete. A missing waiver or a failed inspection holds up the money, and the contractor may slow down or stop if payments lag. Understanding the draw process before closing helps keep the job moving.

For lenders

Draws are how a lender keeps its loan from getting ahead of the project. Inspections confirm the value is really there, and lien waivers and title checks protect the lender’s position against liens from unpaid subs and suppliers.

How to handle draw requests step by step

1. Before signing the contract, ask the owner for the lender’s draw schedule, the required documents and the usual turnaround.
2. Line up your contract’s payment schedule with the lender’s stages where you can, so you bill for what the lender will pay.
3. Ask when the lender inspects, and plan to have each stage visibly finished before then.
4. Prepare your invoice or pay application to match the lender’s budget lines.
5. Collect conditional lien waivers from yourself, your subs and your suppliers before each draw.
6. Give the owner the full package at once, early enough to meet the lender’s cutoff.
7. Follow up with the owner, and with the lender if the owner allows it, until the money is released, then exchange unconditional waivers.

Ask the owner to share the inspector’s report after each draw. If the inspector rated a stage lower than you did, you’ll know what has to be finished before the next visit, instead of finding out when less money arrives.

Draw request example with numbers

Say a homeowner is building a $360,000 addition, financed with a construction loan that covers the full contract. For illustration, the lender’s draw schedule pays a fixed share at each stage.

Draw 1 has paid $54,000. By the end of framing, the contractor has spent $138,000 on the job, so it is carrying $138,000 − $54,000 = $84,000 of its own money until draw 2 funds.

The inspector finds the shingles aren’t finished and rates the stage 80% complete. The lender releases 80% of $90,000, or $72,000. The contractor is still $12,000 out of pocket: $84,000 − $72,000. A week later the roof is done, the inspector returns, and the remaining $18,000 is released.

Across draws 1 and 2, the contractor has received $54,000 + $72,000 + $18,000 = $144,000 against the $138,000 it had spent through framing, putting it $6,000 ahead for the moment. The whole time, that cash gap was set by the lender’s schedule, which is why it belongs in the bid.

Common draw request mistakes

• Signing a contract with a payment schedule that doesn’t match the lender’s draw stages.
• Calling a stage done before the inspector would agree, then waiting for a second inspection.
• Submitting without lien waivers from subs and suppliers the lender knows about.
• Assuming the lender will release money on your timeline rather than its own.
• Signing unconditional waivers before the draw money actually reaches you.
• Not pricing the cash gap between draws into the bid.

Draw delays rarely come from the lender changing its mind. They come from missing paperwork and stages that aren’t quite finished. Knowing the lender’s checklist before the job starts removes most of them.