Ground-Up Construction Draws: How Money Is Released Against Verified Progress

Your construction lender will not wire the full loan amount on day one. The money comes out in stages, tied to milestones you hit and an inspector verifies. Miss a milestone or fail an inspection, and the next draw stops until you fix it.

This is how every ground-up construction loan works. The question is not whether you will operate on a draw schedule—you will—but whether you understand the inspection triggers, the holdback percentage, and what happens when your GC burns through a phase faster than the budget assumed.

How the Draw Schedule Is Built

Before you close, the lender’s construction analyst breaks your budget into phases. A typical single-family ground-up might run six draws:

• Draw 1: Foundation and site prep (15–20% of construction budget)
• Draw 2: Framing, roof, windows (25–30%)
• Draw 3: Rough mechanicals—plumbing, HVAC, electrical (15–20%)
• Draw 4: Insulation and drywall (10–15%)
• Draw 5: Interior finishes, cabinets, flooring (15–20%)
• Draw 6: Final completion and CO (remaining balance)

Percentages are indicative and vary by property type. A four-unit new construction might run eight or nine draws; a commercial shell can run as few as four.

The schedule goes into your loan docs. You cannot unilaterally move money between phases. If framing costs 18% more than budgeted and drywall costs 18% less, the lender does not automatically reallocate—you request a budget modification, they review it, and they approve or deny. Assume the first version of your budget is the one you will live with.

What Triggers a Draw Release

You do not get paid for ordering materials or for your GC saying a phase is done. The lender releases funds after:

1. You submit a draw request with lien waivers from every sub and supplier paid in the prior draw
2. A third-party inspector visits the site and confirms the work matches the budget line item
3. The inspection report clears the lender’s construction desk
4. The lender wires funds, minus a holdback

Typical inspection turnaround: two to five business days from your request to funds in your account, assuming the site passes. Budget three to seven days to be safe. If the inspector flags an issue—missing flashing, out-of-square framing, incomplete rough-in—the draw stops until you remedy it and request a re-inspection. Re-inspection fees come out of your pocket — confirm the amount in your loan documents before you close.

Retainage: The Holdback No One Mentions Upfront

Some construction loans keep back retainage — commonly 10% of each draw — until final completion. Others fund 100% of verified work and leave retainage to your contract with the GC. Ask which one you have before you close, because the difference is real money: on a $400,000 construction budget, 10% retainage is $40,000 you do not see until you deliver a certificate of occupancy and pass the final inspection.

Where it applies, retainage is there because overruns tend to surface in the last stretch of a build — change orders, jurisdiction fees nobody budgeted, finishes that came in over estimate. It becomes your problem if your contingency line was underfunded to begin with. The table below assumes a loan that does hold 10%.

*Final draw releases the budgeted $50,000 plus the $45,000 cumulative holdback, assuming no cost overruns and a clean final inspection.

Why Your GC Hates This and What It Means for You

General contractors operate on thin margins and depend on progress billing to cover payroll and supplier invoices. A draw schedule that releases funds five days after work is verified—and holds back 10%—means your GC is effectively financing part of your project.

Good GCs price this into their markup. Bad GCs underestimate their own cash needs, stretch payables, lose key subs, and slow down your job. The three-week delay between framing completion and drywall start is usually a cash-flow problem, not a scheduling one.

If you are managing the build yourself as an owner-builder, the same constraint applies to you. Plan to carry 15–20% of the construction budget in operating cash to cover the gap between paying subs and receiving draws. Depending on draw timing alone is how projects stall at 60% complete.

When This Is the Wrong Call

A construction loan with a full draw schedule makes sense when you are building from dirt and the project will take six months or longer. It does not make sense if:

• You are doing a heavy rehab, not ground-up construction. Fix-and-flip lenders handle renovations with a simpler structure: one or two inspections, faster draws, no foundation-phase holdback. If you are gutting and rebuilding but the foundation and framing already exist, you want fix-and-flip financing, not a construction loan.
• Your GC or you cannot carry 60–90 days of operating cash. The inspection lag, and retainage if your loan has it, mean someone has to float costs. If neither you nor your GC can, the job will stop mid-phase while you scramble for cash.
• You need the money faster than the inspection schedule allows. Draw inspections are not negotiable, and re-inspections add a week each time. If your equity partners or your own liquidity depends on pulling cash out on a fixed date, a draws-based construction loan will not hit it.
• The project budget has no contingency line or the contingency is under 8%. Retainage assumes your budget was honest. If you are already running tight and retainage takes another 10% off the top, you will run out of money before you run out of building.

What to Confirm Before You Sign

Every construction loan handles draws slightly differently. Before you close, confirm:

• Holdback percentage and release terms. Is it 10%, and does it all release at final CO, or do they release half at framing inspection?
• Inspection fees. Does the lender cover the first inspection of each phase, or do all inspections come out of your construction budget?
• Re-inspection policy. What happens if a phase fails the first inspection? How much does a re-inspection cost, and how fast can they turn it?
• Draw request cutoff. Some lenders require 10 business days’ notice for a draw. Others allow 48-hour requests. Know the calendar before you promise your GC a funding date.
• Budget modification process. If one phase runs over and another runs under, can you reallocate between line items, and what does the lender charge to approve it?

The draw schedule is not a formality. It determines when money moves, and money movement determines whether your project finishes on time or stalls out waiting for an inspection to clear. Read the construction loan agreement for the inspection and holdback terms before you read it for the rate.

If you are evaluating financing for a ground-up project and need clarity on how a specific draw schedule would work against your budget, start with the ground-up construction program or submit your scenario. We work with construction lending partners in the states we serve, on projects from single-family builds to small multifamily ground-up, and we can show you what the inspection timing and holdback actually mean against your numbers.