What Is a Draw Schedule on a Rehab Loan?
Short answer: A draw schedule is the agreed plan for how a lender releases the renovation portion of a fix-and-flip loan – in stages, as work is completed, rather than all at once. You complete a phase of work, request a draw, an inspector verifies the work is done, and the lender reimburses you for that phase. The practical consequence most new investors miss: you fund the work first and get reimbursed after, so you need working capital to float each phase until the draw clears.
By Andrew J. Liersch III — Founder & CIO, Slingshot Investments. 10+ years in private lending, $500M+ funded. Former Wells Fargo Private Mortgage Banking, Bear Stearns, and Deloitte Consulting.
How a draw schedule works
On most fix-and-flip loans, the lender splits the money into two pieces. The acquisition portion funds or initial advance at closing so you can buy the property. The rehab portion is held back and released in draws as the renovation progresses. (This holdback structure is core to how lenders underwrite the loan.
The cycle for each draw looks like this:
1. Complete a phase of the renovation – demo, rough framing, mechanicals, drywall, finishes, whatever the schedule defines.
2. Request the draw for that phase.
3. Inspection – the lender sends an inspector (or reviews documentation/photos) to confirm the work is actually done.
4. Reimbursement – the lender releases that draw, typically within a few days of a cleared inspection.
You then use those funds to pay your crew and roll into the next phase.
The cash-flow gap nobody warns you about
Here’s the part that catches first-time flippers: you pay for the work before the lender reimburses you. The draw covers work that’s already complete. So between starting a phase and clearing the work completed inspection, you’re floating that cost out of your own pocket or your contractor’s pocket / terms.
That means a “fully financed” rehab still requires working capital. If your $90,000 rehab is released in three $30,000 draws, you need enough liquidity (or contractor patience) to complete roughly $30,000 of work before the first reimbursement is issued. Investors who budget only for the down payment and closing costs – and forget the float – stall mid-project.
Plan for it: keep a reserve, negotiate payment terms with your crew that line up with the draw cycle, and structure the schedule into more, smaller draws if cash is tight.
Depending on structure, you usually only pay interest on what you’ve drawn
Most fix-and-flip loans fund in two parts: the money for the purchase or initial advance, released at closing, and a rehab holdback the lender releases in stages as you complete work and request draws. What varies between lenders is when the rehab portion starts accruing interest. There are typically two structures:
As-disbursed (non-Dutch) interest. You pay interest only on the funds actually released. The undrawn rehab money sits with the lender costing you nothing until you draw it. Early in a project, when little or no rehab has been disbursed, your interest cost is low and rises only as you pull funds.
Dutch interest. You pay interest on the full loan amount — the entire committed rehab budget included — from day one, whether or not you’ve drawn it. The undrawn holdback accrues interest while it’s still sitting with the lender. Some lenders use a modified version: undrawn funds are interest-free for an initial window (say, the first few months), then begin accruing whether drawn or not.
How to keep draws moving
– Define the schedule clearly up front – know exactly what work triggers each draw before you start or if the draws are based on complete or partially complete line items
– Document as you go – photos, invoices, lien waivers from subs. Clean documentation speeds inspections and protects you the operator from potential mechanics liens
– Grouping sensibly – too many tiny draws means more inspections and fees; too few means more cash to float. Find the balance.
– Communicate – tell your lender when a phase is ready so the inspection gets scheduled without delay. Most lenders will have a draw request form.
Frequently asked questions
Why don’t lenders just give me all the rehab money upfront?
Because the rehab budget secures the loan only as it becomes value in the property. Releasing it against completed work protects both sides and keeps the project on track.
How long does a draw take to fund?
Typically, a couple days from a cleared inspection – often faster with an established lender relationship and clean documentation.
Are there fees per draw?
Often a modest inspection fee per draw and wire fee if the funds are being wired to your account. Ask for the fee schedule so you can factor it into your budget.
Do I pay interest on rehab funds I haven’t drawn yet?
On many private money loans, no – interest accrues on the drawn balance. Confirm in your specific loan agreement.
As-disbursed (non-Dutch) interest. You pay interest only on the funds actually released.
Dutch interest. You pay interest on the full loan amount — the entire committed rehab budget included — from day one, whether or not you’ve drawn it.
Can I get a draw before the work is done?
Generally no. Draws reimburse completed, inspected work. This is why working capital to float each phase matters.
Want a draw schedule that fits your project?
Slingshot Investments structures draw schedules around the real cash flow of your rehab – so you’re not stranded mid-project waiting on funds. Talk through your project with us.
