Drawdown Schedules in Development Finance: Structuring Cash Flow

Unlike a conventional mortgage where the full loan is advanced on completion, development finance is released in stages known as drawdowns or tranches. Each drawdown corresponds to a phase of the construction programme and is released only after an independent monitoring surveyor confirms that the relevant works have been completed to the required standard. This phased approach is fundamental to how development lending operates in the UK and exists to protect both the lender and the developer from the risks inherent in construction projects.

A typical drawdown schedule might consist of five to eight stages, starting with the initial advance for land acquisition and proceeding through substructure (foundations and ground works), superstructure (walls, floors, and roof), first fix (plumbing, electrics, and plastering), second fix (kitchens, bathrooms, and joinery), external works (landscaping and driveways), and practical completion. The number and timing of stages depends on the scale and complexity of the project. A simple four-unit housing scheme might have five drawdowns, while a 50-apartment block could have eight or more.

The monitoring surveyor, typically a RICS-qualified professional appointed by the lender, plays a central role in the drawdown process. They visit the site before each drawdown to verify that the works claimed have been completed, that the quality is acceptable, and that costs are tracking within the approved budget. The surveyor issues a certificate confirming the value of work completed, and the lender releases the corresponding funds. Monitoring surveyor fees range from £500 to £1,500 per visit depending on scheme size, and these costs are borne by the developer. On a project with seven drawdowns, monitoring surveyor costs typically total £5,000 to £10,000.

One of the most critical aspects of structuring a development finance facility is ensuring that the drawdown schedule aligns precisely with your build programme and your contractor's payment terms. A mismatch between when you need to pay your contractor and when your lender releases funds can create severe cash-flow problems that delay the project, damage contractor relationships, and ultimately erode your profit margin.

Most main contractors and subcontractors expect payment within 14 to 30 days of completing a stage of work. If your lender requires a monitoring surveyor visit (which takes 5-10 days to arrange), followed by a credit approval process (3-7 days), followed by fund transfer (1-3 days), the total time from completing a construction stage to receiving funds can be three to four weeks. During this gap, you may need to fund contractor payments from your own cash reserves. On a large project, a single stage payment to a contractor could be £200,000 to £500,000, which represents a significant cash-flow requirement.

We advise developers to prepare a detailed cash-flow forecast that maps every contractor payment against every expected drawdown, with realistic timelines for the monitoring and approval process. Where gaps exist, either negotiate extended payment terms with your contractor, build a cash reserve to bridge the periods between expenditure and drawdown, or negotiate with the lender for expedited drawdown processing. Some lenders on our panel offer five-working-day turnaround on drawdown requests, which is significantly faster than the three to four week industry norm. This speed advantage can be worth more than a marginally lower interest rate in terms of cash-flow management.

Drawdown schedules can be structured as front-loaded, back-loaded, or evenly distributed across the build programme. The structure you choose, or the lender imposes, has a significant impact on your interest costs and cash-flow dynamics throughout the project.

A front-loaded drawdown structure releases a larger proportion of the facility early in the project. This is most common where the land purchase represents a significant portion of total costs and is advanced on day one. For example, on a project with a £1 million land cost and £1.5 million build cost, the day-one drawdown for land represents 40% of the total £2.5 million facility. The developer then draws the remaining £1.5 million over the following 12-18 months. Front-loading means more of the facility is drawn for a longer period, resulting in higher total interest charges. On a £2.5 million facility at 8%, front-loading might produce total interest of £250,000 compared to £180,000 for an evenly distributed schedule, a difference of £70,000.

A back-loaded structure, where the majority of funds are drawn in the later stages of construction, reduces total interest costs but can create cash-flow pressure during the early phases when the developer must fund groundworks and substructure from their own resources. Some lenders address this by offering a smaller initial advance followed by proportionally larger draws as the build progresses. In our experience, the optimal approach depends on the developer's cash position. Developers with strong cash reserves benefit from a back-loaded structure that minimises interest. Developers with limited cash need a more front-loaded approach that provides early access to funds, even at the cost of higher interest. We model both scenarios for every deal we structure to help developers make an informed choice. For more on how interest accumulates during the build, see our guide on interest roll-up in development finance.

Drawdown delays are one of the most stressful aspects of development finance for borrowers, and they occur more frequently than most developers anticipate. The most common cause is a monitoring surveyor who identifies a discrepancy between the work claimed and the work actually completed on site. Perhaps the developer has requested a drawdown for first fix completion, but the surveyor notes that the electrical wiring in three units is not yet complete. The surveyor may approve a partial drawdown covering the completed work but withhold the balance until the remaining work is finished.

Weather delays, material shortages, and contractor disputes can also push the build programme behind schedule, creating a mismatch between the planned drawdown dates and actual progress. If your lender has budgeted for a drawdown in month six but works are two months behind schedule, the funds sit undrawn but the project clock continues ticking. Any non-utilisation fees compound the problem. On a facility with a 0.5% per annum non-utilisation charge, £1 million of undrawn funds costs approximately £5,000 per year, which is modest. But on larger facilities, these charges become material.

To manage drawdown disputes effectively, we recommend maintaining detailed photographic records of all completed works, keeping contemporaneous daily site diaries, and establishing a good working relationship with the monitoring surveyor from the outset. Inviting the monitoring surveyor to visit the site informally between formal inspections helps build rapport and allows them to flag potential issues before the formal drawdown inspection. This proactive approach reduces the likelihood of surprises and helps ensure that drawdowns proceed smoothly. If a material dispute arises, we can often mediate between the developer and the lender's surveyor to reach a resolution that keeps the project moving forward.

Every development finance facility includes a contingency allowance, typically 5-10% of build costs, to cover unexpected expenses that arise during construction. The way this contingency is structured within the drawdown schedule varies by lender. Some include the contingency as an unallocated portion of the facility that can be drawn against any stage if costs exceed budget. Others require the developer to fund cost overruns from their own resources, with the contingency available only for specific pre-approved circumstances.

In our experience, the contingency structure can have a significant impact on the developer's cash position during the build. On a £1.5 million build cost with a 7.5% contingency, the contingency pot is £112,500. If this is included within the facility and accessible through the normal drawdown process, the developer has a £112,500 buffer funded by the lender. If the contingency must be self-funded and only replenished from the facility at project end, the developer needs an additional £112,500 of working capital. On a project where cash is tight, this distinction can be the difference between smooth delivery and a cash crisis.

We always negotiate contingency access on behalf of our clients. The ideal structure allows the developer to draw against the contingency at any stage, subject to monitoring surveyor verification that the additional costs are genuine and reasonable. This approach gives the lender visibility and control while providing the developer with the flexibility to manage cost overruns without dipping into personal reserves. For developers running multiple projects simultaneously, this flexibility is particularly important. Our guide on portfolio development finance discusses how to manage cash flow across concurrent schemes.

Because interest on development finance is typically charged only on drawn funds, the drawdown schedule directly impacts your total finance cost. Every pound drawn a day earlier costs you approximately 0.02-0.03 pence in daily interest at typical rates. Over a 15-month project on a £3 million facility, the difference between an optimised and a poorly structured drawdown schedule can amount to £20,000 to £40,000 in interest savings.

The simplest optimisation is to delay drawdowns until funds are genuinely needed. If your contractor does not require payment until 30 days after stage completion, do not request the drawdown until day 15 or 20. The two-week delay on a £300,000 drawdown at 8% saves approximately £920 in interest. Across seven drawdowns over 18 months, these savings compound to a meaningful amount. However, this must be balanced against the risk of delayed payments causing contractor friction or contractual penalties.

Another optimisation involves negotiating the drawdown structure with your lender at the term sheet stage. If you can demonstrate that certain early-stage costs are lower than the lender's standard assumptions, you may be able to shift drawdown weighting toward the later stages, reducing the overall average drawn balance and saving interest. We routinely review drawdown schedules proposed by lenders and suggest amendments that benefit the developer without increasing the lender's risk. This detailed structuring work is one of the ways we add value beyond simply placing the loan. To discuss how we can optimise your facility terms, submit your project via our deal room.