What is a Draw Fee?

A draw fee is a charge assessed each time you withdraw funds from a line of credit or construction loan. Unlike origination fees charged once at closing, draw fees are ongoing costs that apply to each disbursement.

How Draw Fees Work

Draw fees are typically calculated as a percentage of each withdrawal amount or as a flat dollar fee. They compensate the lender for processing the disbursement and verifying that conditions for the draw are met.

Example

You have a $100,000 line of credit with a 1% draw fee. You make three draws of $20,000 each. Each draw costs $200 (1% of $20,000), totaling $600 in draw fees. If you had taken a single $60,000 draw, the fee would have been $600 once.

Where Draw Fees Are Common

Draw fees appear most often with:

• Construction loans: Draws are released as building milestones are completed
• Business lines of credit: Some lenders charge per-draw fees
• SBA CAPLines: Working capital lines may have draw fees
• Delayed draw term loans: Where funds are available but not disbursed at closing

Draw Fees vs. Other Credit Line Costs

Lines of credit may have multiple fee types:

• Draw fee: Charged per withdrawal
• Annual fee or maintenance fee: Flat yearly charge to keep the line open
• Unused line fee: Percentage charged on the undrawn portion
• Interest: Charged on outstanding balance

Evaluating Total Cost

When comparing lines of credit, add up all fees based on your expected usage pattern. A line with no draw fee but a 0.5% unused line fee might cost more than one with a 0.25% draw fee if you only occasionally tap the line.

Construction Loan Draw Process

For construction loans, each draw typically requires an inspection to verify completed work before funds are released. The draw fee helps cover these inspection and verification costs.

Expect 4-6 draws on a typical construction project, each potentially incurring fees. Factor these into your construction budget from the start.