Short answer: Construction loans fund in stages, not all at once. You complete a phase of work, submit a draw request with lien waivers and invoices, the lender sends an inspector to verify the work is in place, and funds are released — usually 5 to 15 business days later, minus retainage of 5–10%. You pay for the work first and get reimbursed after. That timing gap is the number one cause of stalled construction projects.
Reimbursement, not advance
The single most important thing to understand about construction lending: you are reimbursed for work already completed. The lender does not hand you money to go do the work.
This surprises first-time sponsors constantly. You close on a $2M construction loan and receive the land or acquisition advance at closing — then nothing. Your framer needs $180,000. The lender will fund that $180,000 after the framing is up and an inspector confirms it.
So you need working capital beyond your equity contribution. Either you carry the cost until reimbursement, or you have subs and a GC willing to work on 30-day terms.
Plan for one full draw cycle of float — typically $50K to $300K depending on project size — sitting outside your down payment. Sponsors who don't budget this end up paying subs from personal accounts, or worse, watching a crew leave for another job.
How draws are structured
Your budget is broken into line items — excavation, foundation, framing, roofing, mechanicals, drywall, finishes, and so on. Each line has an allocated amount. That's your schedule of values.
Two common structures:
Line-item draws. You request funds against specific budget lines based on percentage complete. Most common on custom and mid-size projects. More flexible, more paperwork.
Milestone draws. Fixed disbursements at defined completion points — foundation complete, framing complete, dried in, rough-ins complete, substantial completion. Common on tract and repeatable product. Simpler, less flexible.
Most residential construction projects run 5 to 8 draws. Larger commercial projects go monthly for the term.
What a draw request contains
Missing paperwork is the leading cause of draw delay. A complete package includes:
- Draw request form (AIA G702/G703 on larger projects) showing each line item, amount previously drawn, amount requested, percent complete, and balance to finish
- Invoices from subs and suppliers for the work being funded
- Conditional lien waivers from every party being paid in this draw
- Unconditional lien waivers from everyone paid in the prior draw
- Updated title rundown confirming no new liens have been recorded
- Photos of the completed work
- Updated schedule if timing has shifted
The lien waiver requirement catches people. Your lender is protecting against mechanic's liens, which in Massachusetts and most states can take priority over their mortgage if properly perfected. If one sub won't sign a waiver, that portion of the draw gets held. Set the expectation with subs before they start, and build waiver execution into your payment process.
The inspection
Once the request is submitted, the lender orders an inspection — usually a third-party firm, sometimes the appraiser, sometimes an in-house construction risk manager on larger loans.
The inspector verifies the percentage complete against your request. If you claim framing is 90% done and the inspector says 70%, the draw funds at 70%. There's no argument to be had; they're pricing what's physically in place.
Inspections cost $150–$500 each and are charged to you. On an eight-draw project, that's $1,200–$4,000 in inspection fees you should have in your soft cost budget.
Practical tip: don't submit a draw the day a phase finishes. Submit it two or three days later when the work is unambiguously complete and photographs well. A partial-credit draw costs you more in delay than waiting 72 hours costs you in float.
Retainage
Most lenders hold back 5–10% of each draw, released at completion. On a $1.5M construction budget at 10% retainage, that's $150,000 you don't see until the end.
Retainage exists to guarantee the project gets finished and punch list gets closed. It's standard and mostly non-negotiable — but the release conditions are negotiable.
Push for retainage release at substantial completion with a certificate of occupancy, rather than at final completion with full punch list sign-off. The gap between those two milestones can be 30–60 days, and $150,000 of your capital is sitting in it.
Some lenders will reduce retainage to 5% after the project passes 50% completion. Ask.
Timing, realistically
Submit complete draw request → Day 0
Lender reviews for completeness → 1–3 days
Inspection ordered and performed → 2–5 days
Inspection report returned → 1–3 days
Title rundown → 1–2 days
Funding → 1–3 days
Total → 6–16 business days
Two to three weeks from request to funds is normal. A month is not unusual on a first draw when the process is still getting established.
The first draw is always the slowest. Build the relationship with the draw administrator early — a named contact who knows your project moves things faster than an inbox.
Reallocating between line items
Budgets are wrong. Framing comes in over, mechanicals come in under. You'll want to move money between lines.
Most lenders allow reallocation with written approval, subject to conditions:
- Savings can generally move from a completed line to an incomplete one
- Contingency can be drawn against with justification
- You typically cannot move money out of contingency into general profit
- The total commitment never increases
Request reallocations in writing, in advance, with a clear explanation. Doing it retroactively after you've overspent a line is where the relationship gets adversarial.
The interest reserve
Most construction loans include an interest reserve — a budgeted amount that funds your monthly interest payments during construction. It's a line item in your budget, funded by the loan, and it draws down automatically.
Two things to check:
- Is interest charged on the drawn balance or the full commitment? Drawn-balance is dramatically cheaper. Full-commitment accrual on a $2M loan can cost an extra $60K–$100K over an 18-month build.
- Is the reserve sized for your realistic timeline or the optimistic one? If the reserve covers 12 months and the project takes 16, you're paying interest out of pocket for four months at exactly the moment your capital is most stretched. Size it for the real schedule plus a cushion.
Why projects stall
Nearly every stalled construction project traces back to the same sequence: the sponsor is undercapitalized on working capital, a draw gets delayed by incomplete paperwork or a light inspection, subs go unpaid, crews leave for other jobs, the schedule slips, the interest reserve depletes, and the loan matures with the building unfinished.
The fixes are unglamorous: carry more float than you think you need, keep the draw paperwork tight and submitted the same way every time, don't over-claim percent complete, and size the interest reserve to a realistic schedule.
FAQ
How long does a construction draw take? Two to three weeks from complete submission to funding is typical. First draws often take longer.
Can I get money up front for materials? Some lenders allow a stored materials draw for items delivered to the site and properly insured, often at 50–80% of invoice. Ask before you order.
What if the inspector disagrees with my percent complete? The inspector's number governs. Resubmit for the remainder on the next draw.
Does interest accrue on undrawn funds? Depends on the lender. Drawn-balance-only is much better for you. Confirm it on the term sheet, not at closing.
Can I act as my own general contractor? Some lenders allow owner-builder on smaller projects with a demonstrated track record. Most require a licensed GC with a fixed-price or GMP contract, and many require GC financials.
Structuring a construction loan? Draw mechanics, retainage terms, and interest reserve sizing are negotiable — and they matter more to your returns than a quarter point of rate. Hub Financing arranges construction debt nationwide and negotiates these terms before you sign. Compensated by lenders at closing, no fee to borrowers.