How should a sponsor design the draw schedule on a CRE construction loan?

Mechanics of a clean draw schedule

The draw schedule is the operating document of the construction loan. It sits between the loan budget (sources and uses set at closing) and the actual monthly funding requests. A clean draw schedule resolves three tensions: the sponsor wants funding as early as possible to minimize equity carry, the lender wants funding only against work in place to minimize completion risk, and the GC wants payment cycles that match its subcontractor obligations.

Standard institutional draw schedule funds hard costs monthly in arrears against AIA G702 (application and certificate for payment) plus G703 (continuation sheet showing line-item percent complete). The lender inspector visits the site, validates percent-complete claims line-by-line, and either signs off the draw or marks specific lines for adjustment.

Soft costs (lender legal, borrower legal, architect, engineer, financing fees, taxes, insurance) typically fund against actual invoices on the same monthly cycle. Some lenders allow a soft-cost reserve at closing that funds these as incurred without a separate draw request, a meaningful timing advantage on the carry-cost math.

Retainage is held back from each hard-cost line at 10% (sometimes stepping to 5% at 50% complete) and released either at substantial completion or, on more sponsor-friendly drafts, upon delivery of the punch list and final lien-waiver package. Negotiating retainage release timing at the loan-document stage saves working capital later.