Industries / Construction and contractors
Construction and contractors: financing between the draw and the retainage.
General contractors, subcontractors, specialty trades and site work. How progress billing reads in the statements, why contractors get stacked between draws, and the facilities that carry a job from award to final payment.
What the read looks for
4 things an underwriter reads in this trade before the application.
The bank statements are read first in every trade. In this 1, these are the 4 patterns the read is looking for, and the 4 things to have explained before you send the file.
Lumpy deposits with a reason
Progress payments arrive when a draw is approved, not when the work is done, so contractor statements show large deposits weeks apart. An underwriter wants the schedule of values or the contract behind each 1, and reads the gaps as the working capital need.
Retainage
The 5 to 10 percent held back until completion is money earned and not yet paid. It explains thin months at the end of a job and it is an asset a lender can see once it is documented.
Payroll, materials and the sub tier
Weekly crew payroll and material suppliers are paid before the owner draws. A contractor that pays subs and suppliers on time through a slow draw is read as an operator; 1 that stretches them is read for the liens that follow.
Bonding and the balance sheet
A bonded contractor has already been underwritten by a surety, and the surety's view of working capital and debt shapes what a lender will add without disturbing bonding capacity.
The common position stack
The draw is late and the crew is not.
How the stack usually builds in this trade, and the way out of it.
A general contractor waits 60 days on a pay application while payroll runs weekly. A short advance bridges it; a second covers materials for the next phase; the daily remittances then land on the account in the same weeks the draw is still late. The exit is a facility built for the trade: a bridge or a line sized on the contract and the receivables, with the positions retired at closing.
Facilities that fit
3 structures that match the trade.
Structures, not offers. Every facility is arranged through third party lenders and is subject to their underwriting and approval. Which 1 fits is decided by the file, not by the page.
Bridge loans
Capital between the award and the first draw, or between substantial completion and the retainage release, repaid by the event it bridges.
Read more FacilityLines of credit
Draw and repay as the pay applications clear, for a contractor with a documented backlog.
Read more FacilityPosition buyout
Advance positions retired in full at closing, 1 monthly payment, underwritten on receivables and equipment.
Read moreQuestions from the trade
Answered straight.
Our receivables are progress billings with retainage. Can they be financed?
They can, with the contract, the schedule of values and the approved pay applications in the file. Some lenders will not touch construction receivables; the process is to find the ones that do and let them compete.
Will new debt hurt our bonding capacity?
It can, which is why the surety's working capital and debt tests are part of the structure conversation, not an afterthought. A facility is sized so the balance sheet the surety reads still qualifies.
We have equipment on notes. Is there equity to use?
Often. Excavators, trucks and lifts carry value beyond the note balance once they are a few years in. An equipment schedule with payoff figures is the first step to finding out.
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The trade, specifically
Progress billing, retainage and pay when paid: why contractor receivables finance differently.
The 3 features of construction receivables that most lenders and factors will not finance, and what to do about each.
Progress billing
A pay application for 40% of a contract is not an invoice for work delivered; it is a claim for a percentage of work in progress, subject to the owner's or general contractor's approval and to change orders. Most general factors decline it. Construction factors and asset based lenders finance approved pay applications, at a lower advance rate, commonly 70% to 80%, and only after the application is certified. Get the certification, then finance it.
Retainage
The 5% to 10% held back on every pay application until substantial completion is not financeable by almost anyone, because it is contingent on the whole job finishing. It has to be carried by the business. On a $2,000,000 contract that is $100,000 to $200,000 of working capital tied up for the life of the job, and it is the number most contractors forget when they size a line of credit.
Pay when paid and pay if paid
A subcontract that says you are paid when the general contractor is paid makes your receivable contingent on someone else's collection, and a pay if paid clause can make it contingent on whether they are ever paid at all. Factors read the subcontract, not just the invoice. Where the clause is there, the financeable receivable is smaller and the factor may require the general contractor's credit rather than the owner's. Know which clause your subcontracts carry before you apply.
Lien rights and bonding
Preserved lien rights, meaning preliminary notices served on time in states that require them, make a receivable more financeable, because the lender's collateral is backed by a claim on the property. A bonded job cuts the other way for a factor, because the surety's rights can come ahead of the factor's, and some factors decline bonded receivables entirely. Say up front which jobs are bonded.
What actually works for a contractor
Equipment financing against the iron, because it is underwritten on the asset rather than on the receivables. A construction specific factor or asset based lender on certified pay applications, sized with retainage carried outside the facility. A term loan or line on the company once 2 years of clean financials exist. And for a contractor stacked with advances taken to cover the gap between pay applications, the position buyout against the equipment.
General descriptions of how construction receivables are commonly treated. Lien and notice rules vary by state and are a matter for counsel. Every facility is arranged through third party lenders and funders and is subject to their underwriting.
Start with the file
A straight read within 2 business days.
Send the basics through the intake form: what the file supports, what is missing, and the next step if there is one. If we are not the right desk for it, we say so.