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Construction is one of the toughest industries to finance, not because contractors are bad credit risks, but because the cash cycle is brutal. You pay your crew on Friday, your materials supplier in two weeks, and the owner pays you a month or two after you bill, assuming nobody is fighting over a change order. If you are looking for a construction business loan, what you actually need is a structure that bridges that gap without eating your margin.
This guide walks through how construction financing works in practice, from the working capital math to the underwriting lift a clean progress billing system gives you. We will cover the products that fit, the costs to expect, and the documents that move underwriters from a maybe to a yes.
The working capital gap: pay before you bill, bill before you collect
Every general contractor lives the same timing problem. Labor cost starts the hour you mobilize. Materials suppliers want COD or net 15, the lumber yard rarely extends past 30 days for a newer account, and subs invoice you at net 7 to 30. Meanwhile you bill the owner once a month using an AIA G702 with a G703 schedule of values, and the owner pays at net 30 to 45 if you are lucky. Net 60 or longer is normal on commercial work.
Run the math on a single $1M project with a four-month duration. You outlay labor in weeks 1 through 4 and pay materials in weeks 2 through 6. You bill the owner at the end of month one and collect at the end of month two or three. The cash for week 1 labor lands somewhere between week 8 and week 12. Multiply that by three or four active jobs and you are carrying hundreds of thousands of dollars of unfunded work in progress at any moment.
Then there is retainage. Owners almost always hold back 5 to 10 percent of every progress payment until project close. On a $2M job that is $100K to $200K of cash you have already earned but cannot touch for months. For a contractor running $5M in annual revenue, total retainage exposure across active projects can easily sit at $300K to $500K. That is real money that should be in your operating account.
Construction financing is not about funding a single purchase. It is about funding the predictable gap between when you spend and when you collect, and the product you pick should match that pattern.
Lines of credit, invoice financing, and SBA CAPLines
Three products fit this gap better than anything else. Each handles a different version of the same problem.
A business line of credit is the simplest tool. You draw what you need when payroll or a materials PO hits, then pay it back when the owner's check clears. Rates on revolving lines for established contractors typically run 9 to 18 percent, and you only pay interest on what you draw. For most contractors doing $1M to $10M a year, a line sized at 10 to 15 percent of annual revenue is the right starting point. Our piece on working capital versus a line of credit covers when each one wins.
AR or invoice financing is the other workhorse, built for exactly this receivables timing. Lenders advance 80 to 90 percent of an eligible invoice the day you submit it, then settle when the owner pays. Pricing runs 1 to 3 percent per 30 days, or a 12 to 36 percent APR equivalent. More expensive than a bank line, but it scales with your billing automatically. For contractors growing fast or taking on a single large job that doubles their AR balance, it fills the gap without a new underwriting cycle. Our explainer on asset-based lending walks through advance rates and eligibility rules.
The SBA CAPLines program is the underrated option. CAPLines is a family of SBA-backed lines of credit, and the Contract CAPLine is designed for receivables on construction and service contracts. You can borrow up to $5M, terms run up to 10 years, advance rates sit around 80 to 85 percent of eligible AR, and pricing is at or near SBA 7(a) rates. The catch is setup time. CAPLines closings run 60 to 90 days and the documentation list is long. Once in place, it is the cheapest revolving capital a contractor can get. Our overview of SBA loan programs covers the broader family, and the SBA 7(a) qualification guide applies to most of the criteria.
Equipment is a separate conversation. A Bobcat skid steer runs $40K to $70K, a mini excavator $60K to $130K, a dump truck $50K to $150K, a full-size dozer $200K to $500K. None of that belongs on a working capital line. Equipment financing is the right structure because the asset secures the loan and the term matches the useful life.
How progress billing and bonding shape underwriting
Here is the part most contractors do not realize until they sit through their first serious underwriting call. Your top-line revenue matters less than how clean your progress billing system is.
The first document a lender asks for is a work-in-progress schedule. The WIP lists every active job with contract value, cost to date, estimated cost to complete, percent complete, amount billed to date, and the variance between earned and billed revenue. That last column is the tell. Overbilling looks like a cash boost but creates a liability when the job catches up. Underbilling means unfunded WIP sitting on your balance sheet. Lenders want billings tracking close to percent complete, give or take a few points.
The second document is an AR aging report broken out by job and owner. Receivables aged past 60 days are the warning sign. A few aged invoices on one owner usually means a change order dispute, but a pattern of 60-plus aging across the book signals weak collections. We routinely see a $5M contractor with clean WIP and AR aging qualify for a larger line than an $8M contractor whose aging report has half the AR past 90 days.
Bonding capacity is the third underwriting lens. Sureties size your bonding line off working capital and net worth, typically using a 10x to 20x working capital multiplier. Lenders often treat your bonding line as a proxy for underwriting strength because the surety has already done a deep dive. A contractor bonded for $10M aggregate is sending a credible signal about financial controls.
Before you apply for any meaningful construction financing, build a packet: WIP schedule, AR aging by job, active contracts with values and percent complete, two years of financial statements, and a personal financial statement on the principal. That packet alone moves you from a generic application into a real underwriting conversation. For the broader list, see our business loan documentation checklist. Adjacent trades face the same dynamics, our guide on electrical contractor financing and the math in equipment financing structures are worth a read if you sub out specialty scopes.
How TurboFunding Helps
TurboFunding works with general contractors, sub-contractors, and specialty trade businesses across residential, commercial, and public work. We size the right stack to your situation: a business line of credit for the AR timing gap, AR or invoice financing for fast-scaling receivables, equipment financing for the iron, and SBA loans including CAPLines when the term and pricing justify a 60 to 90 day close. We fund from $10K to $5M, accept 550+ FICO, and only require 6 months in business and $10K+ monthly revenue. Our 3-minute application uses a soft credit pull, so checking your rate has zero impact on your score. Find out More.
Frequently Asked Questions
Q. Can a construction company qualify with seasonal revenue?
A. Yes. Most lenders who actually fund contractors understand the seasonality. What matters is annualized revenue and consistent year-over-year performance, not a flat 12-month deposit chart. Bring two years of statements rather than just six months, and the seasonality story tells itself.
Q. What if I am a new contractor with under a year in business?
A. The qualification bar tightens, but it is not impossible. With 6+ months in business and $10K+ monthly revenue you can qualify for working capital and short-term products. For a real line of credit or SBA financing, most lenders want 2 years on the books. In the meantime, equipment financing on assets you actually need is often the easiest first approval.
Q. Should I use an MCA to cover payroll between draw payments?
A. As a one-time emergency, sometimes. As a recurring tool, no. Daily ACH pulls from an MCA crush your operating account at exactly the moment you need flexibility. A line of credit or invoice financing is built for this. Our breakdown of MCA versus business loan covers when each one actually fits.
Q. How does retainage affect what I can borrow?
A. Retainage is usually excluded from the eligible AR base on a line of credit or invoice financing, because the lender cannot collect on it until the project closes. The good news is that some construction-focused lenders will advance against retainage at a lower rate, typically 50 to 60 percent, once you can document a near-term close. Ask specifically about retainage treatment when you compare offers.
Q. How fast can I get funded?
A. A line of credit or working capital advance: same day to 3 business days for a clean file. Equipment financing: 2 to 5 business days. Invoice financing: typically 3 to 7 days for the initial setup, then same-day advances after. SBA CAPLines and 7(a): 60 to 90 days, no shortcuts. Honest expectations on speed are in our piece on same-day funding.
Construction financing is not one decision. It is a stack sized to the timing of your cash cycle: a line of credit for the everyday receivables gap, invoice financing or a CAPLine for the larger structural gap, and equipment financing for assets that hold their value. Get your WIP and AR aging clean, walk in with the full packet, and you will be a different applicant than the contractor who shows up with three months of bank statements. Ready to size the right stack? Apply in 3 minutes with a soft credit pull. Find out More.