Why Construction Draw Management Matters

Construction lending is one of the most complex and risk-intensive forms of private lending. Unlike term loans with fixed balances, construction loans require active management throughout the project lifecycle — and the draw process is where most lenders experience their greatest operational challenges.

The Construction Draw Process: A Framework

Phase 1: Pre-Draw Setup

Before the first draw, establish your draw schedule framework:

Define draw milestones tied to construction phases

Set inspection requirements for each draw

Establish documentation requirements (invoices, lien waivers, permits)

Configure your draw request process and approval workflow

Phase 2: Draw Request Management

When a borrower submits a draw request, your process should include:

**Documentation Review:** Verify all required documents are present and complete. This includes contractor invoices, lien waivers from subcontractors, and inspection reports.

**Budget Reconciliation:** Compare the draw request against your approved budget. Flag any line items that exceed budget or seem inconsistent with the project phase.

**Inspection Coordination:** For draws above a threshold amount, require an independent inspection to verify work completion.

Phase 3: Draw Approval and Funding

A streamlined approval workflow should include:

Automated routing to the appropriate approver based on draw amount

Digital approval with full audit trail

Automated funding instructions to your disbursement team

Borrower notification upon approval and funding

Phase 4: Post-Draw Tracking

After each draw, update your records:

Record the draw against the loan balance

Update the budget-to-actual tracking

Note any variances or concerns for future draws

Update the project completion percentage

Common Mistakes to Avoid

**Skipping Inspections:** The cost of an inspection is trivial compared to the cost of funding work that hasn't been completed. Never skip inspections for large draws.

**Inadequate Lien Waiver Collection:** Failing to collect lien waivers from all subcontractors exposes you to mechanic's lien claims that can cloud your title.

**Manual Budget Tracking:** Using spreadsheets to track budget vs. actual creates reconciliation errors and makes it difficult to spot problems early.

How Technology Improves Construction Draw Management

Modern lending platforms automate the most error-prone parts of the draw process:

Digital draw request portals for borrowers

Automated document checklists and reminders

Budget vs. actual tracking with variance alerts

Integrated inspection scheduling

Automated approval workflows with audit trails

The result is faster draws for borrowers, better risk management for lenders, and significantly less manual work for your team.

Construction Draw Best Practices for Private Lenders