What Is a Construction Draw Schedule?
When a developer takes out a $10 million construction loan to build a Florida commercial building, the bank does not hand over $10 million on day one. If they did, the developer could take the money and disappear, leaving an empty dirt lot. Instead, the bank creates a construction draw schedule that releases the money in carefully controlled installments.
A typical draw schedule divides the total loan into 5 to 8 major phases ("draws"), each tied to a specific construction milestone:
- Draw 1 — Site Preparation: The bank releases $500,000 after the land is cleared and graded.
- Draw 2 — Foundation: The bank releases $1.5 million after the concrete foundation passes inspection.
- Draw 3 — Framing: The bank releases $2 million after the structural framing is complete.
- Draw 4 — Rough-In: $1.5 million after plumbing, electrical, and HVAC rough-in passes inspection.
- Draw 5 — Drywall & Finishes: $2 million after interior walls and finishes are installed.
- Final Draw — Certificate of Occupancy: The remaining funds are released only after the building passes its final inspection and receives a Certificate of Occupancy.
The Bank Inspection Process
Before each draw is released, the bank sends an independent construction inspector to the job site. The inspector physically verifies that the milestone has been completed to specification and that the work matches the approved architectural plans. If the inspector finds deficiencies (like substandard concrete or missing fire suppression equipment), the bank will refuse to release the draw until the problems are corrected.
Retainage
Most construction draw schedules include a retainage provision. The bank holds back 5% to 10% of each draw as a financial incentive for the contractor to finish the project. The retainage is only released after the final inspection is passed and any punch-list items are completed. This protects the developer from a contractor who does 95% of the work and then walks off the job.
Related Terms
- Mortgage — The permanent loan that replaces the construction loan after the building is finished
- Certificate of Occupancy — The government approval that triggers the final draw
- Completion Bond — Insurance guaranteeing the project will be finished
Barnes Walker Construction Finance
Barnes Walker's construction finance attorneys negotiate draw schedules and retainage provisions on behalf of Florida developers and commercial lenders, ensuring milestone inspections are properly documented and that loan disbursements are strictly aligned with actual construction progress. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC