The construction draw schedule details how construction loan proceeds are anticipated to be used/disbursed over the loan period, specifically for what purpose and at what point in the development project.

Construction loans are not immediately advanced when the loan closes. Instead, the lender will require a detailed property budget and agree to advance funds as certain milestones or completion percentages are achieved for the project, which becomes the draw schedule.

To illustrate how a draw schedule works, assume that a borrower has been approved for a $1MM construction loan and, as part of their loan agreement, they have agreed to a 5 draw schedule where each draw is advanced when the project has reached a multiple of 20% completion.

So, the draws will be distributed when the project is 20%, 40%, 60%, 80%, and 100% complete.

The length of a construction draw schedule will depend on the size and scope of the project, but most draw schedules are set up for one year. Many projects don’t take that long, though, which is why draw schedules are based on percentages of completion rather than dates.

Construction projects are notoriously known for delays due to issues beyond the contractor’s control, such as weather conditions or disruptions in their supply chain. That’s another reason why draw schedules in construction are popular in commercial construction projects.

Since draw schedules are built around milestones, it will depend on how long it will take you to complete the work as well as how long it takes you to get started on it.

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📈 Chart of The Week

Despite Supply Headwinds, Carolinas Rents Continue to Increase

In May 2023, rents were up by 0.5% in the Carolinas, a monthly pace right in line with the national norm of 0.4%.

Normally, this would not be quite an impressive feat. But it becomes one when considering supply headwinds. In the past decade, Carolinas markets made up four of the top 10 markets for inventory growth rates.

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