Ground-Up Construction Financing: How Draw Schedules Work (And Why They Make or Break Your Project)

You found the land. You have a builder lined up. You even have a floor plan. But when it comes to financing a ground-up construction project, most real estate investors hit the same wall: lenders don’t hand you the full loan amount on day one. They use a draw schedule — and if you don’t understand how it works before you close, you’ll run out of cash at the worst possible moment.

In this guide, we break down exactly how draw schedules work, what lenders actually look for when funding ground-up construction, and how to structure your deal so you’re never waiting on money while your crew is waiting on you. If you’re ready to find out what financing your next build could look like, start at slatefinancial.io/apply.

What Is a Construction Draw Schedule?

A draw schedule is the disbursement plan for your construction loan. Rather than receiving a lump sum, you receive funds in stages — called draws — tied to specific milestones in the building process. Each draw is typically released after an inspection confirms that work has been completed to that stage.

Common draw milestones include:

• Draw 1 — Foundation: Footing poured, foundation complete, rough framing started
• Draw 2 — Framing: Exterior walls, roof deck, rough plumbing/electrical roughed in
• Draw 3 — Mechanical / Rough-ins: HVAC, plumbing, electrical inspections passed
• Draw 4 — Drywall and Exterior: Insulation, drywall hung, exterior siding and windows installed
• Draw 5 — Substantial Completion / CO: Interior finishes, landscaping, final inspection, certificate of occupancy issued

The exact number of draws and milestones varies by lender. Some private lenders operate on 4 draws; larger institutional construction programs may use 8 or more. Funding is subject to lender approval and your specific project scope.

Why the Draw Schedule Matters More Than the Loan Amount

Investors often focus on the total loan amount and the interest rate. The draw schedule is where projects actually succeed or fail in the field.

Here’s why:

Cash Flow Timing

If your lender requires 30 days to process a draw request and your next milestone takes 3 weeks, you’re waiting a week or more before your crew can continue. That delay costs you holding interest, idle labor, and potentially the project schedule. Before you close your loan, ask the lender: what is your average draw turnaround time? The best construction lenders process draw requests in 5 to 10 business days.

Inspection Requirements

Most construction lenders require a third-party inspection before releasing each draw. That inspector works for the lender, not for you. Their report determines whether you receive your funds. Understanding what each inspection covers — and making sure your GC knows the expectations — prevents draws from being held up over minor items.

Retainage

Some lenders hold back a percentage (often 5 to 10%) of each draw until final completion. Called retainage, this protects the lender but reduces your available working capital at every stage. A project budgeted to 90% LTC may effectively operate at 81% LTC if 10% retainage is held throughout. Factor this into your construction budget from day one.

What Lenders Actually Look at When Funding Ground-Up Construction

Ground-up construction is higher-risk than a fix-and-flip. Lenders look beyond credit score and property value. Here’s what they actually underwrite:

Experience

Have you completed a similar project before? Most private construction lenders want to see at least one comparable completed project — ideally the same asset type and similar scope. First-time builders can still qualify, but may face lower LTC (loan-to-cost) ratios or higher reserve requirements.

The Budget and Plans

A fully itemized construction budget and stamped architectural plans (or at minimum a detailed scope of work) are standard requirements. Lenders are underwriting the cost of building the asset, not just the as-complete value. If your budget has gaps or round-number estimates, expect pushback.

General Contractor Credentials

Your GC’s license, insurance, and track record matter to the lender. Many institutional construction lenders require GC approval before closing. Have your builder’s information ready: license number, certificate of insurance, and prior project list.

Loan-to-Cost (LTC) and Loan-to-Value (LTV)

Construction lenders think in LTC (what percentage of total project cost will they fund?) and as-complete LTV (what percentage of the finished value?). Typical private construction loan parameters in 2026 range from 75% to 90% LTC and 65% to 75% as-complete LTV, depending on borrower experience, market, and asset type. Funding is subject to lender approval and individual project review.

Exit Strategy

Are you building to sell (spec home) or building to hold as a rental? Your exit strategy affects which lenders will fund you and on what terms. Spec builders often need a construction-to-perm or construction-only bridge. DSCR rental investors may have access to combined construction-to-permanent products that convert at CO.

Common Mistakes That Stall Construction Loan Draws

Even investors with solid experience lose days and weeks to draw delays that could have been avoided. Here’s what we see most often:

• Requesting draws before the milestone is fully complete. Inspectors fail draws for unfinished work. Schedule inspections only when the milestone is 100% done.
• Not having lien waivers ready. Many lenders require partial or full lien waivers from contractors and subcontractors before releasing draws. Know this requirement in advance and get your GC to build it into their payment process.
• Budget overruns on early draws. If you spend more than budgeted on framing, the lender doesn’t automatically release more. Contingency reserves — typically 10% of total construction cost — protect you from this. Build it into the budget, not as an afterthought.
• Slow draw request documentation. Every draw request requires documentation: inspection report, contractor invoice, updated schedule, and lien waiver. Create a checklist and get organized before you ever pull the first draw.

Types of Ground-Up Construction Loans Available in 2026

The construction lending market has evolved. Depending on your deal, you may have access to:

Private / Hard Money Construction Loans

Fastest to close (often 10 to 20 business days), flexible underwriting, higher rates. Best for experienced builders who need speed or have credit challenges. Typical terms: 12 to 24 months, interest-only on drawn balance.

Construction-to-Permanent (C2P) Loans

One loan that converts from construction to a permanent mortgage at CO. Avoids a second closing and refinance risk. Better for long-term hold investors building to rent. Harder to qualify, slower to close.

Portfolio and Institutional Construction Lines

For experienced developers doing multiple builds simultaneously, institutional lenders offer credit facilities rather than per-project loans. Lower rates, but significant experience and track record requirements.

Not sure which product fits your project? Apply at slatefinancial.io/apply and our team will identify which lenders in our network match your deal profile. Funding subject to lender approval.

How to Prepare Your Draw Request Package

A clean, complete draw request package is your fastest path to funded draws. Every time. Include:

1. Inspector’s signed report confirming milestone completion
2. Contractor invoice itemized by line item matching the budget
3. Conditional or unconditional lien waivers from GC and major subs
4. Updated construction schedule showing where you are vs. plan
5. Photos of completed work (required by most lenders, speeds inspection turnaround)

Submit everything together in one package. Incomplete packages are the single biggest cause of draw delays.

The Bottom Line

Ground-up construction financing is more complex than a typical fix-and-flip loan, but for investors who understand how draw schedules work, the complexity becomes a competitive advantage. You know how to budget for retainage. You know how to build a clean draw package. You know what questions to ask a lender before you sign. That knowledge keeps your project moving when other investors are waiting on wire transfers.

If you have a ground-up build, spec home, or construction-to-perm deal you’re ready to move on, let’s find the right lender for your project. There is no cost to apply, and our team will match your deal to the lenders most likely to close it. Funding is subject to lender approval and individual project underwriting.

Ready to fund your next deal? Apply in 2 minutes at slatefinancial.io/apply

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