Contractor Lines of Credit and Mobilization Funding: Sizing to Backlog and WIP

By MercFinancial · Published 2026-10-21

A contractor line of credit is sized to backlog and the work-in-progress schedule, drawn for payroll and materials between pay applications and paid down as draws arrive. Mobilization and materials funding cover the rest.

A contractor line of credit is a revolving facility sized to the contractor's backlog and work-in-progress schedule, drawn to cover payroll and materials between pay applications and paid down as each draw arrives. Banks write it for established contractors with clean WIP reporting. Asset-based lenders write it against eligible receivables for contractors the bank passes on. Beside it sit two products for the gaps a line does not reach: mobilization advances, which fund the start of a specific job before the first pay application, and materials financing, where a lender pays the supplier and is repaid from the draws.

This guide covers how a line is sized, how draws and the line interact job by job, how mobilization and materials funding work and what they cost in general terms, the covenants and monthly reporting a contractor signs up for, and how MercFinancial places a line request among its contractor funding sources.

Size the line to the jobs that will repay it, not to the revenue the contractor hopes to bill.

How a contractor line of credit is sized

A bank sizes a contractor line from the jobs that will repay it. The starting point is the work-in-progress schedule and the backlog: the contract value remaining on open and signed jobs, the gross margin the contractor has historically earned, and the monthly cost burn those jobs will require. From that the lender estimates the peak gap between costs paid and draws received, adds a cushion, and compares the result to what the balance sheet can carry. Working capital, net worth, the surety's bonding capacity and the owner's guaranty all cap the number. Annual revenue, the figure most contractors lead with, barely enters it.

An asset-based lender sizes differently. It builds a borrowing base from eligible receivables, typically current progress billings owed by creditworthy owners and general contractors, excludes retainage, disputed billings and anything over a set age, and lends a share of what is left. The line moves with the receivables, which suits a contractor whose billings are steady and punishes one whose billings bunch. When a revolving line fits and when a term loan does is set out in business line of credit versus term loan.

How draws and the line interact, job by job

The line and the draws run in opposite directions on the same calendar. Payroll and supplier invoices are paid through the month from the line. The pay application goes to the owner or general contractor at month end, with lien waivers conditioned on payment. The draw arrives weeks later, less retainage, and the lender expects it to pay the line down before the next month's costs go up. On a bank line the paydown is a covenant as much as a convention: a line that never rests, or that only grows, tells the lender the contractor is funding losses or growth it cannot afford.

Two habits keep the interaction clean. Draws are deposited to the account the lender sees and applied to the line the day they clear. And a job that is slipping, where draws are late or a change order is unapproved, is reported before the lender finds it on the next WIP. Lenders watch the line's turnover against the draw schedule, and a contractor who can explain every gap in a sentence keeps the line. A contractor who cannot should expect the questions laid out in why banks decline contractors.

Mobilization advances: funding the start of a job

A line funds the middle of a job. Mobilization funding funds the beginning, when the contractor must pay for bonds, permits, equipment moves, first materials and the first weeks of labor before the first pay application can be submitted, let alone paid. Some contracts include a mobilization line item the owner pays at the start, and a contractor should always ask for one. When the contract does not, or the owner's mobilization payment covers less than the real cost, specialty lenders advance the mobilization cost against that specific contract.

The underwriting is the contract, not the contractor's history. The lender reads the owner's or general contractor's credit, the schedule of values, the payment terms and the lien and bond protections, takes an assignment of the job's receivables, and is repaid from the first one or two draws. Cost is quoted per month of exposure and runs higher than a bank line, because the lender carries the risk that the job starts late or the first draw is disputed. The product fits a contractor that has won a job larger than its balance sheet and would otherwise have to decline it.

Materials financing and supplier credit

Materials are the largest cost on many jobs and the one most easily financed on their own. The simplest form is supplier credit: the supply house extends terms, and a general contractor's joint check, made out to the contractor and the supplier together, protects the supplier and the contractor's lien rights at the same time. The limit is the supplier's own appetite, which tightens as a contractor's balance grows.

Materials financing lenders extend that idea. The lender pays the supplier directly for an approved purchase, the contractor installs the materials and bills them in the next pay application, and the draw repays the lender on terms that commonly run a few months. The lender underwrites the job and the owner, takes an assignment of the receivable, and expects to be repaid from the draw that bills the materials. It costs more than supplier terms and less than a factor, and it keeps the bank line free for payroll. Where the draw itself is the problem, the products in construction invoice factoring and retainage sit beside it.

Covenants, reporting and what ends a contractor line

A contractor line comes with conditions, and reading them before signing avoids the surprise that ends most lines. The common covenants are a minimum working capital or current ratio, a maximum debt to net worth, a cap on over-billings relative to the line, a clean-up or rest period each year on a bank line, and a duty to notify the lender of any lien, bond claim or lawsuit. Reporting is monthly or quarterly: a WIP schedule, a receivables aging with retainage separated, a borrowing base certificate on an asset-based line, and annual reviewed or audited statements above a size the lender sets.

Lines end when the reporting stops, when over-billings run past the covenant, when a surety claim is filed, or when the line stops turning. They also end quietly at renewal when the bank's appetite for construction changes, which is a reason to keep a second relationship warm. A contractor whose line is reduced or pulled is the case that construction business loans was written for.

Where MercFinancial fits

MercFinancial is a commercial funding brokerage in Houston, Texas, not a lender, and a line request is placed the way every file is. A funding specialist reads the work-in-progress schedule, the backlog, the draw calendar and the balance sheet first, then identifies which of the more than 160 funding sources in the network have a credit policy that allows contractors and the structure the file supports: a bank or asset-based line, a mobilization advance on a signed contract, materials financing, or some combination. One file goes to all of them, the offers are compared on cost, covenants and reporting burden, and when nothing fits the answer is a plain no with the reason. Availability always depends on the funding source. The business funding programs cover the line, the term and the equipment pieces.

Frequently Asked Questions

How big a line of credit can a contractor get?

It is sized to the jobs, not the revenue. A bank estimates the peak gap between costs paid and draws received on the contractor's backlog and work-in-progress, adds a cushion, and caps the result at what working capital, net worth, bonding capacity and the owner's guaranty will carry. An asset-based lender advances a share of eligible receivables, excluding retainage and aged billings. The amount depends on the funding source.

What is mobilization funding?

An advance against a specific signed contract that covers the cost of starting the job: bonds, permits, equipment moves, first materials and early labor, before the first pay application is submitted or paid. The lender underwrites the owner or general contractor, the schedule of values and the payment terms, takes an assignment of the job's receivables, and is repaid from the first draws. Cost depends on the funding source.

How does materials financing work for contractors?

A materials financing lender pays the supplier directly for an approved purchase. The contractor installs the materials, bills them in the next pay application, and the draw repays the lender on terms that commonly run a few months. The lender underwrites the job and the owner and takes an assignment of the receivable. It costs more than supplier terms and less than factoring, and it keeps a bank line free for payroll.

What covenants come with a contractor line of credit?

Commonly a minimum working capital or current ratio, a maximum debt to net worth, a cap on over-billings, an annual rest or clean-up period on a bank line, and a duty to report liens, bond claims and lawsuits. Reporting is monthly or quarterly: a WIP schedule, a receivables aging with retainage separated, a borrowing base certificate on an asset-based line, and annual reviewed or audited statements above a size the lender sets.

Can a subcontractor get a line of credit without a bank?

Yes. Asset-based lenders write lines against eligible receivables for subcontractors the bank declines, construction factors buy verified progress billings, mobilization lenders fund the start of a signed job, and materials financing pays the supplier against the next draw. Each costs more than a bank line and underwrites the job and the payer as much as the subcontractor. Availability and cost depend on the funding source.

MercFinancial is a commercial funding brokerage in Houston, Texas. MercFinancial is a broker, not a lender: every loan is made by a third-party funding source, every request is subject to that source's underwriting and credit approval, and loan amounts, advance rates, interest rates, terms, fees, collateral and guaranty requirements vary by funding source and borrower and are not guaranteed. Nothing here is a commitment to lend or an offer of credit, and financing is for business purposes only. Any example in this guide is hypothetical and illustrative; actual terms and outcomes vary. Contractors are licensed and bonded under state and local law and lien rights vary by state; financing availability depends on the funding source's policies. This guide is educational only and is not legal, tax, accounting or investment advice.