The contractor's cash flow problem, stated plainly
An electrical subcontractor wins a $600,000 scope on a commercial building. Before the first pay application is approved, the sub has bought $80,000 of wire and panels, paid six electricians for five weeks, and rented a lift. The pay application goes in at the end of the month, is approved in thirty days, and is paid thirty days after that, less 10 percent retainage held until the whole building is done. The sub is financing the general contractor, who is financing the owner, who is waiting on the bank. Everyone downstream is short.
Construction financing exists to carry that float. The structures that work are a line of credit sized to the pipeline, factoring on approved pay applications, equipment financing for anything with an engine, and, for established firms, SBA and bank facilities. The structures that do not work are the ones that debit the account daily while the money is still ninety days out.
Lines of credit: the working tool
A line of credit of $50,000 to $500,000 is the contractor's most useful instrument. Draw it to mobilize, repay it when the pay application clears, draw it again on the next job. Non-bank lenders approve lines in a day for firms with twelve months of statements and $50,000 or more a month in deposits; banks take three to four weeks and cost half as much, and they want two years of returns and a balance sheet that shows a profit.
Size the line to the biggest job you will carry at once, not to the whole year. A sub running three $400,000 jobs concurrently needs a line that can cover six weeks of labor and materials on all three. Underestimating it is how a profitable firm ends up stacking advances in month four.
Factoring in construction: possible, with conditions
Factoring is harder in construction than in trucking because of retainage, lien rights and the habit of general contractors disputing invoices. It is possible, with factors that specialise in construction and advance against approved pay applications rather than raw invoices. Advances run 70 to 80 percent, fees 2 to 4 percent per thirty days, and the factor will want to see the contract, the schedule of values and the approval of each application.
It suits subcontractors with a few large, creditworthy generals and long payment cycles. It does not suit firms doing many small residential jobs, where the paperwork cost exceeds the fee.
Equipment: own what you use every week, rent the rest
A mini excavator, a skid steer, a boom lift, a dump truck. Each costs $40,000 to $150,000 and each can be financed over three to seven years at annual rates from the high single digits for an established firm to the twenties for a newer one. The rule most successful contractors follow: finance what is on a job every week of the year, rent what is needed for one phase of one job. A $90,000 excavator financed at $1,800 a month pays for itself against rental at $4,500 a month within the first year of steady use. The same machine idle half the year does not.
Equipment lenders in our network finance new and used earthmoving, lifting, concrete, paving and specialty equipment, and work trucks. Used equipment to about fifteen years for heavy iron. Titled vehicles are the easiest; attachments and tooling are financed alongside the machine.
What a contractor's file needs to show
Three months of business bank statements. A work in progress schedule or at least a list of current contracts with their values and completion percentages. The last two years of tax returns for anything over $150,000. For equipment, the quote. Bonding capacity, if you have it, helps with every lender because it means a surety has already underwritten you.
Lenders mark down: large unexplained transfers to personal accounts, payroll that outruns deposits for more than a quarter, tax liens, and a pattern of returned checks to suppliers. They mark up: repeat generals, public work with its reliable pay cycle, and a bookkeeper who can produce a WIP schedule on request.
The plain recommendation
Arrange the line of credit before the big job starts, not after the first payroll is late. Finance the equipment that runs every week; rent the rest. Use factoring where the generals are strong and the cycles are long. Keep advances for a specific short purpose with a known return, such as materials for a job that pays in sixty days, and never for carrying a loss on a job that went wrong. Once the firm has two years of profitable returns, move the whole structure to a bank line and SBA terms. We prepare that file with you when the time comes.