Construction Company Funding

On a construction job, you spend before you earn. You buy lumber and concrete, pay your crew and subcontractors, and carry insurance and bonding, all while waiting for the next draw to be approved. Then comes retainage: the 5 to 10 percent commonly withheld until the job is complete, which can mean tens of thousands of dollars of your money parked for months.

Contractors can be perfectly profitable on paper and still be short on cash on a Thursday before payroll. This page walks through the cash mechanics of project-based work and the funding options contractors commonly consider, so you can pick one that matches the job rather than guess.

Where the cash gets stuck

Draw schedules are written around milestones: foundation poured, framing complete, rough-ins passed. Each draw typically requires an inspection or approval, then an invoice cycle, then payment. A delay at any step pushes the money back while costs continue. A change order that is verbally approved but not yet signed is cash you have spent and cannot yet bill.

Retainage compounds the issue. On a $500,000 contract with 10 percent retainage, $50,000 may stay with the owner until final completion and punch list approval. That is a hypothetical, but for a mid-sized contractor running several jobs, retained funds can add up to a substantial portion of annual revenue.

• Slow draw approvals and inspection delays
• Retainage held until closeout
• Unsigned change orders
• Subcontractor and supplier bills due before owner payment
• Weather days that push schedules but not payroll

Funding materials and payroll between milestones

Short-term working capital is often used to cover the interval between spending and the next draw. Because you know roughly when each milestone payment is expected, you can size the amount and term to that window. A bridge needed for 45 days should not be repaid over 12 months if you can avoid it, and a product repaid in fixed daily payments needs deposits that can support it during the weeks between draws.

Lumpy deposits can look unusual in bank statements. Contractors should be ready to explain that large deposits are draw payments, and that quiet weeks are normal between them. Fidelity Funding specialists review these patterns with you, and our funding partners can often work with project-based income.

A worked example: bridging to the next draw

Suppose a remodeling contractor has three active jobs. A $60,000 draw on the largest job is delayed by 30 days, while the crew payroll, supplier invoices and a dumpster rental total $42,000. If the contractor takes a $42,000 advance at a 1.25 factor rate, total payback is $52,500, a cost of $10,500.

Is it worth it? If delaying payroll would idle a crew and push the whole job back another month - risking a penalty clause or a lost follow-on project - it may be. If the draw would arrive in a week, probably not. The decision rests on what the delay itself would cost you. These numbers are only illustrations, and terms vary by funding partner and underwriting.

Equipment, bonding and growth

Bigger contracts bring bigger requirements. Public work may require bid and performance bonds, which depend on your financial strength, and larger jobs may demand equipment you currently rent. Buying a skid steer or excavator is an asset purchase better suited to equipment financing, where the machine is collateral, than to short-term cash advances.

Growth is where cash problems sneak in. Winning a bigger job means buying more materials and hiring more labor before the first payment. Add a cushion for the slower first draw when you plan. A common mistake is to size funding to the contract value rather than to the actual out-of-pocket period.

What funding partners look at

Expect a review of recent business bank statements, time in business, average monthly deposits and existing obligations such as equipment notes. A backlog of signed contracts is helpful context even if funding partners rely mostly on bank activity. Keep your contractor license, insurance and basic job list handy in case a specialist asks questions.

As with any funding, discuss tax and accounting treatment, such as how retainage and work-in-progress are reported, with your CPA. Fidelity Funding is a broker rather than a direct lender, so we focus on connecting you with partners and helping you compare.

Protecting margin on every job

Funding is easier to carry when the job itself is priced well. Track committed costs against the budget weekly, not at closeout, and bill change orders as soon as they are approved in writing. Unbilled extra work is the most common source of the cash gaps contractors blame on slow payers.

Consider asking for a mobilization payment or front-loaded schedule of values when the owner will accept it. Collecting a deposit is almost always cheaper than borrowing against the same costs. Lien waiver rules and prompt-payment statutes vary by state, so confirm your rights with a construction attorney.

Starting the conversation

The application is short and the initial review is a soft credit pull only, so your score is not affected. A funding specialist reviews options with you, decisions can often arrive within hours, and funding often within about 24 hours once approved, though timing varies. If a draw delay is about to collide with payroll, talk to a specialist before the deadline rather than after.

This article is for general information only and isn’t financial, legal or tax advice. Funding approval, amounts and terms are set by funding partners and depend on underwriting.