Draw Schedule

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.

Putting ‘Draw Schedule’ in Context

Silver Star Development’s ground-up development of The Star Elite Hotel and Resort in Las Vegas, NV, is being funded in part by a $65 million construction loan. To ensure that the loan is disbursed responsibly over the 24-month development period, Silver Star Development and the lender have agreed upon a draw schedule. This schedule outlines how and when the loan proceeds will be disbursed based on specific milestones in the construction process.

Before closing on the loan, Silver Star Development submitted a detailed project budget, which included line items for site preparation, foundation work, structural framing, interior build-out, and finishing work such as landscaping and signage. These stages were further broken down into smaller categories, such as costs for plumbing, electrical systems, and HVAC installation. The lender then used this budget to create the draw schedule, linking disbursements to key construction milestones.

For instance, the draw schedule might specify:

• Draw 1: $5 million for site preparation and grading, to be disbursed after the contractor confirms the land has been cleared and leveled.
• Draw 2: $10 million for the foundation, disbursed once the concrete foundation is poured and inspected.
• Draw 3: $15 million for structural framing and roof installation, released after framing is completed and the roof is watertight.
• Draw 4: $25 million for interior work, which includes HVAC, plumbing, electrical systems, and drywall, to be disbursed as the interior reaches specific completion benchmarks (e.g., 50% completion of interior walls).
• Final Draw: $10 million for finishing work and landscaping, to be disbursed upon near-completion of the hotel and final inspection.

In this case, the lender will only release funds as each phase of the project is completed, and progress is verified through regular site inspections. This process ensures that the development stays on track and reduces the lender’s risk, as funds are tied directly to progress on the project.

In short, the draw schedule ensures that Silver Star Development receives loan funds in phases as they hit specific construction milestones, allowing the lender to maintain control over how the loan proceeds are used and helping to keep the project on budget.