What Are Development Finance Drawdowns?
Unlike a standard mortgage where you receive the full loan amount on day one, **development finance** is released in stages known as **drawdowns** (also called tranches). Each drawdown is triggered when a predefined construction milestone is reached and verified by an independent monitoring surveyor.
This staged release mechanism is fundamental to how [development finance](/services/development-finance) works. It protects the lender by ensuring funds are only released as genuine progress is made, and it protects the borrower by keeping interest costs lower in the early stages of the build.
Understanding how drawdowns work, how to manage the process efficiently, and how to avoid common pitfalls is essential knowledge for any property developer.
Why Lenders Use Staged Drawdowns
The staged drawdown structure exists for several important reasons:
- Risk management - the lender's exposure increases only as the asset value increases through construction progress
- Cash flow discipline - funds are directed towards verified construction work rather than being available as a lump sum
- Project monitoring - regular inspections provide early warning if a project is falling behind schedule or over budget
- Cost control - each drawdown stage confirms that the remaining facility is sufficient to complete the project
For the developer, drawdowns also mean that **rolled-up interest** accrues only on the amount actually drawn, not the full facility. This can represent a significant saving over the life of the project.
**Key Takeaway:** Staged drawdowns mean you only pay interest on money you have actually received. On a £2m facility where the average drawn balance is £1.2m, you save approximately 40% on interest compared to drawing the full amount on day one.
The Typical Drawdown Structure
Day-One Advance
The first drawdown is the **day-one advance**, which funds the site acquisition. This is typically the largest single tranche and may represent 35-50% of the total facility.
The day-one advance covers:
- Site purchase price (or equity release if you already own the site)
- Stamp Duty Land Tax (SDLT)
- Arrangement fee (if deducted from the advance)
- Retained interest (if the lender retains interest from the facility)
- Initial professional fees
Build Stage Drawdowns
The remaining facility is drawn down in stages aligned with construction milestones. The exact stages vary by project type and lender, but a typical residential scheme might follow this structure:
| Stage | Description | Typical % of Build Cost |
|---|---|---|
| Stage 1 | Demolition and site clearance | 5-10% |
| Stage 2 | Foundations and substructure | 10-15% |
| Stage 3 | Superstructure (walls, floors, roof) | 20-25% |
| Stage 4 | Weathertight envelope | 10-15% |
| Stage 5 | First fix (M&E, plumbing) | 15-20% |
| Stage 6 | Second fix and finishes | 15-20% |
| Stage 7 | External works and practical completion | 5-10% |
Some lenders use fewer stages (4-5 for simpler projects) while complex developments may have 8-10 or more drawdown points.
Final Drawdown
The final drawdown is released at **practical completion** or close to it. Some lenders retain a small percentage (typically 2.5-5%) as a **retention**, released once any snagging items are resolved.
The Monitoring Surveyor's Role
The **monitoring surveyor** (also known as a Project Monitoring Agent or PMA) is the lender's eyes on the ground. They are an independent professional, usually a chartered surveyor, instructed by the lender to oversee the project.
What the Monitoring Surveyor Does
Before each drawdown, the monitoring surveyor:
- Visits the site to inspect completed work
- Verifies that the claimed work stage has been reached to the required standard
- Assesses remaining costs to confirm the undrawn facility is sufficient to complete
- Reviews the build programme to flag any delays
- Prepares a report for the lender recommending whether to release the drawdown
What Can Go Wrong
Drawdown requests can be delayed or reduced if the monitoring surveyor finds:
- Work not completed to the claimed stage - the surveyor will only certify what has actually been done
- Quality issues - substandard work may need to be rectified before funds are released
- Cost overruns - if costs have exceeded projections, the remaining facility may be insufficient, prompting the lender to request additional equity
- Programme delays - significant delays may trigger a review of the overall facility
**Key Takeaway:** Build a good working relationship with your monitoring surveyor. They are not your adversary - they are performing a necessary function that protects both you and the lender. Transparency about progress and any issues will serve you better than trying to present a rosier picture than reality.
How to Request a Drawdown
The typical drawdown request process follows these steps:
Step 1: Reach the Milestone
Complete the construction work required for the next stage. Ensure quality standards are met and the site is safe and presentable for inspection.
Step 2: Submit a Drawdown Request
Notify your lender (usually via your broker or the lender's project finance team) that you are ready for a drawdown inspection. Include:
- The drawdown stage number and description
- The amount requested
- Photographic evidence of completed work
- Any updated cost schedules or programme information
- Contractor payment applications or invoices
Step 3: Monitoring Surveyor Inspection
The lender instructs the monitoring surveyor to visit the site. This is usually arranged within **5-10 working days** of the drawdown request, though urgent requests can sometimes be accommodated faster.
Step 4: Surveyor Report
The monitoring surveyor submits their report to the lender, typically within **3-5 working days** of the site visit. The report will recommend either:
- Full release of the requested amount
- Partial release if some work is incomplete
- No release if the stage has not been reached (rare with proper preparation)
Step 5: Lender Approval and Funds Release
Once the lender approves the drawdown (usually within **2-3 working days** of receiving the surveyor's report), funds are released to the borrower's solicitor and then to the borrower.
Typical Drawdown Timeline
| Step | Duration |
|---|---|
| Request to inspection | 5-10 working days |
| Inspection to report | 3-5 working days |
| Report to funds release | 2-5 working days |
| Total | 10-20 working days |
Managing Cash Flow Between Drawdowns
One of the biggest challenges developers face is **managing cash flow between drawdowns**. Because the monitoring surveyor certifies work **in arrears** (after it has been completed), you need working capital to fund construction costs before the next drawdown is released.
Strategies for Managing Cash Flow
- Negotiate payment terms with your contractor - many main contractors accept payment in line with the drawdown schedule rather than demanding payment in advance
- Use a cost schedule aligned with drawdown stages - ensure your QS report and drawdown schedule are closely aligned so there is minimal gap between spending and receiving funds
- Maintain a cash reserve - always keep sufficient cash reserves to cover 4-6 weeks of build costs in case of drawdown delays
- Front-load your equity - by contributing your equity at the start of the project, you can use drawdown proceeds to reimburse yourself progressively
- Consider a working capital facility - some developers use a small revolving credit facility or overdraft to bridge the gap between spending and drawdowns
**Key Takeaway:** Never assume drawdowns will arrive on a precise date. Build in a cash buffer of at least 4-6 weeks of construction costs to cover the gap between spending and receiving funds.
Drawdowns for Different Project Types
Ground-Up New Build
[Ground-up developments](/knowledge-hub/ground-up-development-finance-new-build) typically have the most drawdown stages (6-8) because the construction process involves clearly defined milestones from foundations through to completion.
Conversion Projects
[Permitted development conversions](/knowledge-hub/permitted-development-finance-conversions) may have fewer stages (4-6) because the external structure already exists. Stages typically follow strip-out, structural alterations, first fix, second fix, and completion.
Heavy Refurbishment
[Heavy refurbishment projects](/knowledge-hub/heavy-refurbishment-finance-guide) can be more challenging for drawdowns because the scope of work may evolve as the project progresses (e.g., discovering structural issues during strip-out). Lenders may build in additional contingency for refurbishment drawdown schedules.
Arrears vs Advance Drawdowns
Most development finance facilities operate on an **arrears** basis - you complete the work first, then request the drawdown. However, some lenders offer **advance drawdowns** where a portion of each stage is released before the work is completed.
Arrears Drawdowns
- Most common structure
- Work must be completed and certified before funds are released
- Lower risk for the lender, so typically better pricing
- Requires the developer to have working capital to fund the gap
Advance Drawdowns
- Less common but available from some specialist lenders
- A percentage of each stage (e.g., 75%) is released in advance, with the balance on certification
- Higher risk for the lender, so may attract slightly higher pricing
- Better for developer cash flow
- More common on larger schemes with experienced developers
Common Drawdown Issues and Solutions
Issue: Drawdown Delayed Due to Slow Surveyor
**Solution**: Build relationships with responsive monitoring surveyors and ask your lender if you can suggest a preferred surveyor. Some brokers can help expedite appointments.
Issue: Partial Release Instead of Full Drawdown
**Solution**: Ensure work is genuinely complete before requesting the inspection. A half-finished stage wastes everyone's time and delays your funding. Wait an extra few days if needed to present a complete stage.
Issue: Cost Overrun Flagged at Drawdown
**Solution**: Be proactive about communicating cost increases to your lender and monitoring surveyor. If costs have risen, approach the lender early to discuss options (additional equity, facility increase, or resequencing the programme) rather than waiting for the surveyor to flag it.
Issue: Lender Requesting Additional Information
**Solution**: Maintain a well-organised project file with up-to-date schedules, cost reports, and programme information. The more prepared you are, the faster drawdowns are processed.
How Drawdowns Affect Your Interest Costs
Because interest is calculated daily on the **drawn balance**, the timing and size of drawdowns directly affect your total interest cost. Consider two scenarios for a £2m facility at 9% over 15 months:
**Scenario A: Even drawdown profile**
- Day one: £800k drawn
- Months 2-12: £100k drawn every 6 weeks
- Total interest: approximately £165,000
**Scenario B: Front-loaded drawdown**
- Day one: £800k drawn
- Month 2: £600k drawn
- Month 6: £400k drawn
- Month 10: £200k drawn
- Total interest: approximately £195,000
The front-loaded profile costs approximately **£30,000 more** in interest because a larger balance accrues interest for a longer period.
For a detailed analysis of all development finance costs, see our guide to [development finance rates and fees](/knowledge-hub/development-finance-rates-costs-fees). You can also model different drawdown scenarios using our [development finance calculator](/calculators/development).
Summary
Drawdowns are the mechanism that makes development finance work. Understanding the process - from monitoring surveyor inspections to funds release - helps you plan your build programme, manage cash flow, and minimise interest costs.
The keys to smooth drawdowns are thorough preparation, honest communication with your monitoring surveyor, adequate cash reserves between stages, and a well-managed build programme that hits milestones on schedule.
If you are planning a development project and want to discuss the best drawdown structure for your scheme, [contact our team](/contact) for expert guidance.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*