By industry
Construction business financing: paying for work before you get paid for it
Construction's financing problem is structural — you fund labour and materials for months before the money arrives. Here is what solves it.
The problem is retainage and timing, not profitability
A contractor can be highly profitable and permanently short of cash. You pay labour weekly and materials on delivery, you bill on a schedule of values, you get paid in 30 to 90 days, and 5% to 10% is held as retainage until final completion. On a growing book of work, the faster you grow the worse the gap gets.
Recognizing that this is a timing problem rather than a profit problem points you at the right products immediately.
What fits
| Need | Best fit |
|---|---|
| Cash gap between draw and payment | Invoice factoring or an AR line of credit |
| Equipment, vehicles, and attachments | Equipment financing — the sector standard |
| Materials for a specific job | A line of credit, or supplier trade credit |
| Bonding capacity | Not a loan — a surety relationship, but your balance sheet drives it |
| Buying a yard or shop | SBA 504 |
| Buying out a retiring partner | SBA 7(a) |
Bonding and borrowing pull in opposite directions
Surety companies underwrite your bonding capacity largely off working capital and net worth. Taking on debt can reduce measured working capital and therefore your bonding line, which for a contractor bidding public work is a serious cost.
- Talk to your surety agent before you take significant debt, not after.
- Factoring often reads better than borrowing on a surety's analysis, because it converts an asset rather than adding a liability.
- Subordinated debt from an owner can sometimes be treated as equity for bonding purposes if documented correctly.
What lenders check in this sector
- Work in progress schedule. Under-billings, over-billings, and estimated cost to complete. If you cannot produce a clean WIP, get an accountant who does construction.
- Percentage-of-completion accounting. Cash-basis books make a contractor look erratic and are a common reason for a decline.
- Backlog, and its concentration. One customer at 60% of backlog is a risk.
- Job costing discipline. A contractor who can show margin by job is a fundamentally different credit from one who can only show annual revenue.
Questions people actually ask
Can I finance a specific construction project?
Yes — mobilisation financing and contract financing exist, priced against the contract and the creditworthiness of who is paying. Factoring against progress billings is usually simpler and cheaper if your customers are strong.
Does taking a loan hurt my bonding capacity?
It can. Sureties look at working capital and net worth, and debt can reduce measured working capital. Structure matters a great deal here — talk to your surety agent before you commit, because the cost of a reduced bonding line can exceed the benefit of the loan.
What is retainage financing?
Financing against the 5% to 10% withheld until completion. It exists, it is more expensive than standard factoring because payment is further out and contingent, and not every factor offers it. Ask specifically.