Construction Loan Draw Process and Disbursement, Step by Step

The construction loan draw process has five steps. The builder submits a draw request package, the lender reviews it, a third-party inspector verifies the work in place, the lender approves the verified amount, and the funds wire. Ledger averages 3 to 5 business days, request to wire.

Work completeFinish the milestone. Draws fund work in place.
Package submittedRequest form, SOV, invoices, lien waivers, photos, permits.
Lender reviewLines, budgets, permits, and waivers checked.
Site inspectionA third party verifies percent complete.
Approval and wireThe verified amount funds, net of fees.

Construction Draw Process: Quick Facts

Steps in the process: 5
Ledger average, request to wire: 3 to 5 business days
Draws per month (Ledger): Up to 2
Minimum draw size (Ledger): None
Draw fee (Ledger): $350 + inspection
Inspection: Third party, on site
Funds advance on: Work in place only
Interest starts: The day each draw funds

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Ledger funds ground-up construction loans up to 90% LTC, $150K to $5M, with no minimum draw size and up to two draws a month. First build? See our first-time builder construction loans.

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What a Construction Loan Disbursement Is

A construction loan does not fund in one piece. At closing, the lender funds the Day 1 amount. That amount covers the land or the acquisition, plus closing costs. The rest of the loan sits in a construction holdback. The holdback funds in pieces as the work goes in. Each piece is a draw. A disbursement is the wire that pays a draw. Lenders and builders use the two words for the same event.

Example. On a $1,000,000 ground-up loan, the Day 1 disbursement might be $300,000 for the lot and closing costs. The $700,000 holdback then funds through 5 or 6 draws over the build. The draw schedule sets how much of the holdback each milestone releases. The draw process on this page is how each release happens.

The Draw Process, Step by Step

One draw cycle runs from the day the work finishes to the day the money lands. Every construction lender runs some version of these five steps.

Finish the work and build the package. A draw funds against work in place, so finish the milestone first. Then assemble the package: the signed draw request form, the updated Schedule of Values (SOV), invoices and receipts for each line you request, lien waivers from the GC and every sub and supplier you paid, dated photos, and issued permits for any permit-required scope. The full checklist is in the next section.
Submit the request through the lender's portal. Most construction lenders run draws through a portal, not email. Ledger uses an Asset Management portal. The portal time-stamps the request, keeps the documents in one place, and starts the clock. Submit once, with everything attached. A request that arrives in pieces restarts the review each time a piece lands.
The lender reviews the package. The draw team checks the request against the approved budget. They confirm that each line you request exists on the SOV, that the cumulative draw on each line stays within its budget, that the percent complete you claim is plausible, that permits are on file for permitted scope, and that the lien waivers match the invoices. On a loan that closed within the last 60 days, they also confirm the work happened after the appraisal date. Problems surface here, before an inspector is sent. Most holds are a missing document, and the fix is to upload it.
A third-party inspector verifies the work. The lender orders the inspection from an approved vendor. The inspector visits the site and verifies percent complete, line by line, against the SOV. The type of inspection scales with the holdback. A status inspection covers most single-family loans. Larger holdbacks and multi-unit projects get a fund-control review that also verifies invoices and lien waivers. You pay the inspection cost, and the lender nets it from the draw. Typical cost: $150 to $350 for a status inspection, $350 to $750 for fund control.
The lender approves the verified amount and wires it. If the inspector's number differs from the request, the lender funds the inspector's number. The draw fee and the inspection cost come out of the wire. The wire goes to the account on the wire affidavit you signed at closing. Interest on the draw starts the day it funds. On a Ledger loan, the full cycle averages 3 to 5 business days from request to wire.

What Goes in a Draw Request Package

Lenders hold draws for missing paper more than for any other reason. Send all of these with every request:

The signed draw request form, with the amount and the SOV lines requested.
The updated SOV: budget, drawn to date, this request, and balance for every line.
Invoices and receipts that tie to each line requested.
Conditional lien waivers for this draw, from the GC and every sub and supplier paid out of it.
Unconditional lien waivers for the prior draw, to prove those payments cleared.
Dated progress photos of the work in each line.
Issued permits for any permit-required scope in this draw: structural work, electrical, plumbing, and HVAC rough-ins, demolition, footprint changes, wells and septic, retaining walls over 36 inches, and anything else the municipality requires.
A signed change order if the budget or the scope moved since the last draw.

Start from a working template. Ledger's free draw schedule template includes a draw request form and a 21-line SOV that tracks drawn to date and flags any line over budget before you submit.

Why Draws Get Held, and the Fix for Each

A held draw is almost never a judgment call. It is a document or a number that does not match. These are the seven reasons we see most, in order.

Reason the draw is held	What happens	The fix
Lien waivers missing or mismatched	The lender cannot confirm the subs are paid. The draw waits for the waivers.	Collect a conditional waiver when you cut each check, not at draw time.
Percent complete claimed is higher than verified	The lender funds the inspector's percent. The balance waits for the next draw.	Request against finished work only. Framing at 90% with trusses on the ground funds at the inspector's number.
Stored materials	Materials that are not installed do not fund. A pallet of windows in the driveway does not fund the window line.	Size your working capital to carry materials from purchase to install.
Permit-required scope with no permit on file	That line waits until the permit uploads. Permit soft costs do not reimburse until the permit issues.	Upload each permit the day you receive it.
Work done before the appraisal date, inside the first 60 days	Draws in the first 60 days must pay for value created after the appraisal. Pre-appraisal spend can force a restructure.	Flag any pre-appraisal spend before closing so the loan structure accounts for it.
A line over budget with no change order	The lender flags the overrun and holds that line.	Send the change order the day you know a line will run over, not at the draw.
Wire instructions that do not match the affidavit	The lender will not wire to a new account on the strength of an email. This is wire fraud protection.	Expect a callback and a signed update for any change to wire instructions.

Draws, Interest, and the Interest Reserve

Interest accrues on each draw from the day it funds, on the drawn balance only. The lender bills monthly, due on the first for the prior month. The math is the drawn balance times the rate, divided by 12. On $225,000 drawn at 11%, the month costs about $2,063. Most lenders size an interest reserve into the loan. The reserve pays the monthly interest during the build, and each payment is itself a draw. The draw schedule page has a full $500,000 sample schedule with the interest math at each milestone and a carry calculator.

Who Funds First: Pro Rata or LIFO

The order in which the lender and the borrower put money in is set at closing, not at the draw. Under pro rata (pari passu) funding, each draw funds the lender's share of the completed line and the borrower pays the balance. Under LIFO, or sequential funding, the borrower spends all of their equity first and the lender's draws start after that. Pro rata is the default on most Ledger construction loans. LIFO applies when leverage sits at the maximum or borrower equity is thin. The five steps above are the same under both.

How Ledger Runs Draws

No minimum draw size. Draw what the work supports.
Up to two draws a month. Match the draw cycle to your sub payment cycle.
$350 per draw, plus the inspection cost. Both net from the wire.
A physical, third-party inspection on every draw.
An average of 3 to 5 business days from request to wire.
Interest-only on the drawn balance during the build, with an interest reserve sized into the loan.
Draw requests through the Asset Management portal, with the documents in one place.

The draw process is the same on our ground-up construction loans, spec home construction loans, and first-time builder construction loans. Price a build on the construction loan calculator, or get a term sheet and we will walk the draw structure with you.

Frequently Asked Questions

How does the construction loan draw process work?

The construction loan draw process has five steps. The builder finishes a milestone and submits a draw request package through the lender's portal. The lender reviews the package against the approved budget. A third-party inspector visits the site and verifies the work in place. The lender approves the verified amount and wires it, net of the draw fee and inspection cost. Ledger averages 3 to 5 business days from request to wire.

What is a construction loan disbursement?

A construction loan disbursement is any release of loan funds. The first disbursement happens at closing and covers the land or acquisition plus closing costs. The rest of the loan sits in a construction holdback and disburses in stages, called draws, as work goes in place and an inspector verifies it. Lenders and builders use draw and disbursement for the same event.

How long does a construction draw take?

Ledger averages 3 to 5 business days from a complete draw request to the wire. Across the industry, builders who submit a clean package (signed request, updated SOV, lien waivers, invoices, photos, permits) usually see funds in under 7 business days. A request that is missing documents takes longer, because the review restarts when each document lands.

What documents do I need for a construction draw request?

A complete package has the signed draw request form, the updated SOV with drawn-to-date and this request by line, invoices and receipts that tie to each line, conditional lien waivers for this draw and unconditional lien waivers for the prior draw from the GC and every sub and supplier paid, dated progress photos, issued permits for any permit-required scope, and a signed change order if the budget or scope moved.

Who inspects the work before a draw, and who pays for it?

The lender orders the inspection from an approved third-party vendor, and the inspector visits the site to verify percent complete against the SOV. The borrower pays the inspection cost, and the lender nets it from the draw. A status inspection on a single-family build typically runs $150 to $350. Fund-control reviews on larger holdbacks and multi-unit projects, which also verify invoices and lien waivers, run $350 to $750 or more.

Can I get a draw for materials I bought but have not installed?

No. Construction lenders fund work in place. A pallet of windows in the driveway does not fund the window line; the windows set in their openings do. Size your working capital to carry materials from purchase until they are installed and verified.

How often can I request a construction draw?

On a Ledger construction loan you can request up to two draws a month, with no minimum draw size. Each draw costs $350 plus the inspection cost. Many lenders cap draws at one a month or set a minimum draw amount, so confirm the draw terms in the term sheet before you plan your cash cycle.

What happens if the inspector finds less work complete than I claimed?

The lender funds the percent complete the inspector verified, not the percent requested. The difference stays in the holdback and funds on a later draw once the work is in. Request against finished work only, and the two numbers match.

Do I pay interest on loan funds I have not drawn?

No. Interest accrues on the drawn balance only, and each draw accrues from the day it funds. The monthly bill is the drawn balance times the rate divided by 12. On $225,000 drawn at 11%, that is about $2,063 for the month. Most lenders size an interest reserve into the loan so the reserve pays the monthly interest during the build.

Need draws that keep pace with your build?

No minimum draw, up to two a month, and an average of 3 to 5 business days from request to wire. Get a term sheet on your next project, or estimate your rate first.

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The Construction Loan Draw Process: From Draw Request to Wire