Building or flipping a home can be a lucrative investment, but the high upfront cost typically requires partnering with a fast, flexible lender like ABL. To ensure you get the funds you need when you need them most, construction projects follow a draw schedule. 

Read on to learn what a residential construction draw schedule template looks like, how it works, why you should have one, and best practices for making it effective. 

What Is a Residential Construction Draw Schedule Template?

A residential construction draw schedule is a timeline for when loan funds will be distributed to you as the project owner. Typically, each payment or “draw” is tied to a construction milestone, such that the total loan amount is spread across the span of the project. 

How a Residential Construction Draw Schedule Works

To establish a draw schedule, you must collaborate with your lender and any contractors, investors, or other stakeholders. The final schedule should clearly define draw amounts, construction milestones, and other loan disbursement terms.

From there, you can submit draw requests after completing each agreed-upon construction milestone (e.g., finishing the foundation or framing). Keep in mind that you may need to include documents showing your completed work (invoices, photos, etc.) and pass a job site inspection. 

As each draw request is approved, you’ll see more money hit your bank account to help fund the next construction phase. The cycle then repeats until the project is complete and all outstanding loan funds have been released. 

Benefits of a Residential Construction Draw Schedule

Implementing a robust construction draw schedule has many benefits:

Minimize Financial Risk

By tying payments to construction milestones, draw schedules limit the financial risk of everyone involved. They ensure you as the investor can compensate contractors for work completed, and they protect lenders by not requiring them to extend and risk the full loan balance upfront. 

Stay on Budget and on Schedule

A draw schedule can motivate you to stay on schedule. If construction falls behind, so do your payments. Furthermore, you’re less likely to go over budget if you carefully plan out costs upfront and track them as you go. 

Predict Cash Flows

The predictable cash flow that comes with a draw schedule helps you better plan when to buy materials and pay subcontractors, streamlining business operations. 

Improve Accountability and Business Relationships

Incremental loan disbursement helps keep you and other stakeholders accountable throughout the construction lifecycle, building trust and lasting business relationships. For example, many ABL borrowers are long-time partners who’ve used our loan programs to fund multiple projects.

How to Create a Residential Construction Draw Schedule

Now that you know how residential construction draw schedules work and why they’re important, let’s dive into the steps to create one.

1. Determine the Total Project Budget

The total project budget is simply the loan amount you are approved for (plus any funds you bring to the table). For example, ABL can finance up to 85% of the upfront cost on a fix and flip or up to 70% of the land value on a new construction project. 

2. Create a Schedule of Values (SOV)

A schedule of values (SOV) is an itemized list of all the tasks within a construction project, along with their corresponding costs or values. This can include everything from permits to paint. The more granular the SOV is, the better. Just make sure the total cost stays within budget.

Pro Tip: Some lenders withhold a percentage of each draw amount until the project is complete as a financial safeguard (aka retainage). Keep this in mind when budgeting.

3. Spread the SOV Over the Project Schedule

With a complete list of construction line items, you’re ready to spread them across the project timeline. Consider how long various tasks will realistically take and ensure they align with an agreed-upon draw schedule. 

4. Review and Update the Draw Schedule as Needed

Finally, don’t be afraid to adjust the draw schedule as you go. Rarely do construction projects go exactly according to plan, so carefully monitor progress and make changes as needed.

Residential Construction Draw Schedule Template

Of course, building a residential construction draw schedule from scratch can be time-consuming. Instead, why not start with a professional template?

Download ABL’s free construction draw schedule template from our Document Library:

Disclaimer: ABL does not provide investment advice or guarantee that its draw schedule template is suitable for any particular project. The template is meant to be an example only.

Tips for an Effective Residential Construction Draw Schedule

While every construction project is different, here are some best practices for designing an effective draw schedule:

Plan for Setbacks

Delays and unexpected costs are common in construction, so set aside time and part of the budget (e.g., 5-10% of each draw) for contingencies to avoid disruptions. 

Communicate Often

While project changes are somewhat inevitable, you should never leave lenders and other stakeholders in the dark. Regularly update them on the project’s latest milestones and setbacks. 

Document Everything

To make draw approvals run as smoothly as possible, keep detailed records. These can include invoices, receipts, change orders, contracts, insurance policies, schedules, tax documents, etc. You never know when you might need them.

Give Realistic Estimates

It may be tempting to promise speedy construction times and low costs, but it’s better to underpromise and overdeliver than to overpromise and underdeliver. Manage expectations by giving realistic estimates.

Consult Professionals

Work with reputable lenders, attorneys, and contractors to craft a robust and fair draw schedule. Use everyone’s combined expertise to ensure it complies with local standards and regulations. This can save you a lot of time and money in the long run.

Partner with ABL On Your Next Construction Project

Get your next construction project off the ground by partnering with ABL. We offer flexible fix-and-flip and new construction loans to investors just like you, and we’ll help craft an attractive draw schedule to support you through your entire project. Contact us today to learn more!