Construction companies have specific financing needs around equipment, working capital between project milestones, and bonding capacity. Here's how to fund every stage.
The Cash Flow Challenge in Construction
Construction businesses face a distinctive cash flow challenge that most other industries do not: they must fund labor, materials, equipment, and overhead upfront, but receive payment in stages — typically at project milestones or 30–90 days after invoice. A general contractor winning a $2 million contract may need to mobilize $200,000–$400,000 in labor and materials before receiving the first draw. This gap between outflow and inflow is the defining financial challenge of the construction industry.
Add to this the complexity of retainage (typically 5–10% of each draw withheld until project completion), bonding requirements, equipment depreciation, seasonal work patterns, and unpredictable project timelines — and construction financing becomes a specialized need that general-purpose products often do not serve well.
Types of Construction Business Loans
Business Lines of Credit
A revolving business line of credit is the most versatile working capital tool for contractors. Draw what you need to mobilize on a project, repay when the draw comes in, and the credit replenishes. A $150,000–$500,000 line can bridge the cash flow gap on multiple simultaneous projects. Lines of credit are most accessible to contractors with 2+ years in business, 650+ FICO, and strong bank statement history. Rates typically run 8%–20% APR.
SBA 7(a) Loans for Contractors
SBA 7(a) loans are an excellent option for established construction businesses (2+ years, 650+ FICO, $500,000+ revenue) needing significant working capital or equipment financing at low rates. Terms up to 10 years for working capital and 25 years for real estate, with rates of 10%–14% APR. The 4–8 week process is worth the wait for the right-sized businesses. Learn more in our complete SBA 7(a) guide.
Equipment Financing
Construction equipment — excavators, skid steers, cranes, compactors, concrete trucks — represents massive capital investment that can be financed separately from working capital. Equipment financing uses the equipment as collateral, making it more accessible (560+ FICO) and often at better rates than unsecured working capital loans. Terms of 3–7 years align with equipment useful life. See our equipment financing guide for full details.
Invoice Financing / Construction Factoring
Construction invoice financing and factoring convert outstanding draw requests and receivables into immediate cash. Rather than waiting 30–60 days for a GC or owner to pay an invoice, you can advance 70–85% of the invoice value immediately. Construction factoring companies familiar with retainage structures, lien laws, and AIA billing formats exist specifically for this industry. This is particularly valuable for subcontractors dependent on a slow-paying GC.
Revenue-Based Financing
Revenue-based advances provide fast capital (same day to 2 days) for contractors with consistent monthly revenue, even with lower credit scores. Best for bridging short-term gaps — mobilizing on a new project before existing receivables clear — rather than long-term financing needs. Factor rates of 1.15–1.35 are typical for established contractors.
Qualification Requirements
| Loan Type | Min. FICO | Min. Time in Business | Funding Speed |
|---|---|---|---|
| SBA 7(a) | 650+ | 2 years | 4–8 weeks |
| Line of Credit | 600+ | 12 months | 2–5 days |
| Equipment Financing | 560+ | 6 months | 1–3 days |
| Invoice Financing | 550+ | 3 months | 1–2 days |
| Revenue-Based Financing | 500+ | 6 months | Same day–2 days |
Key Documents Lenders Want from Contractors
Beyond standard business financing documentation (bank statements, tax returns, P&L), construction lenders also typically want:
- Current contract backlog — what work is under contract but not yet billed
- Work-in-progress (WIP) schedule showing percentage completion and projected billings
- Bonding capacity and current bonding company
- License status (general contractor or specialty contractor license in good standing)
- Accounts receivable aging — especially any retainage amounts and their expected release dates
Managing Retainage: The Unique Construction Cash Flow Problem
Retainage — the 5–10% of each payment withheld until project completion — creates a significant cash flow lag that accumulates across multiple projects. A contractor doing $3 million annually might have $150,000–$300,000 of earned but withheld retainage at any given time. Retainage financing and factoring products exist specifically to advance this withheld amount before project completion. If retainage is a chronic cash flow drain for your business, ask about retainage-specific financing solutions.
How Approvd Helps Construction Businesses
Approvd works with construction-experienced lenders across all product types in our network of 75+ lending partners. We understand the industry's unique cash flow dynamics, retainage challenges, and equipment needs — and we match construction businesses with lenders who specialize in contractor financing rather than forcing a general-purpose product onto a construction-specific need. Apply free with no credit impact to see your construction financing options.
Frequently Asked Questions
Can a new contractor get a business loan?
Yes — equipment financing is accessible from day one for contractors needing specific equipment. Revenue-based financing becomes available after 3–6 months of operations. SBA loans and lines of credit typically require 12–24 months of history.
Do I need bonding to get a construction business loan?
Bonding is not required for most business loans — it is required to bid on many public construction contracts. Some lenders view bonding capacity as a positive credit signal, but its absence does not disqualify you from financing.