Operating businesses banks avoid
Construction and Contractor Financing
Contractors are financed between draws by lenders built for the gap: lines sized to backlog, mobilization and materials funding, construction factors, equipment lenders and SBA-backed loans. The file that gets approved is the one with a work-in-progress schedule in it.
Why lenders say no to construction & contractors businesses
- Revenue is recognized on percentage of completion, so a contractor's profit depends on estimates a bank cannot test without a work-in-progress schedule.
- Costs are paid weekly and draws arrive monthly or later, so the gap between spending and collecting commonly runs 60 to 90 days on commercial work.
- Retainage holds back part of every billing until the job closes, and pay-when-paid clauses let a party the contractor never contracted with delay the receivable.
- Under-billing reads as hidden losses and over-billing as revenue already spent, and most contractor files cannot show the lender which one it is.
- Bonding, lien claims and litigation can surface long after the work is done, and a surety's indemnity sits ahead of most lenders in practice.
What actually gets funded
- Lines of credit sized to backlog: A bank or asset-based line, sized from the work-in-progress schedule and backlog rather than annual revenue, funds payroll and materials between draws and is paid down as each draw arrives.
- Mobilization and materials funding: Specialty lenders advance the cost of starting a specific job, or pay the supplier directly, and are repaid from that job's first draws. The contract and the owner are the underwriting.
- Construction invoice factoring: Construction factors buy verified progress billings, advance most of the billing within days and remit the balance less a fee when the owner or general contractor pays. Retainage is usually excluded.
- Equipment financing and fleet refinancing: Excavators, cranes, trucks and fleets are financed on the machine itself, and a paid-off fleet can be refinanced or sold and leased back to raise working capital for the gap between draws.
- SBA-backed loans and surety support: Contractors are SBA-eligible under 13 CFR 120.110 for a shop, an acquisition or permanent working capital, and the SBA's surety bond program under 13 CFR Part 115 helps small contractors bond larger jobs.
Construction & Contractors funding guides
- Construction Invoice Factoring and Retainage: Getting Paid Before the Owner Pays — Construction invoice factoring lets a contractor sell a verified progress billing and receive most of its value within days, the balance when the owner pays. Why general factors decline it, what construction factors need, and the cost.
- Construction Equipment Financing: Excavators, Cranes, Trucks and Fleets — Construction equipment financing covers nearly every machine a contractor runs, new or used, through loans, leases and dealer programs, and it is usually the easiest contractor credit to place because the machine is the collateral.
- Contractor Lines of Credit and Mobilization Funding: Sizing to Backlog and WIP — 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.
- Why Banks Decline Contractors, and What Lenders Need to See — Banks decline contractors because the file cannot answer whether the jobs are profitable, when the draws arrive and what is held in retainage. A work-in-progress schedule, a backlog report and a retainage-separated aging can.
- Construction Business Loans: Financing Contractors Between Draws — Construction business loans fund the gap between the contractor's costs and the owner's draw: lines of credit, mobilization funding, equipment financing, factoring and SBA-backed loans. Who writes each one, and what the file needs.
How MercFinancial places construction & contractors requests
MercFinancial is a commercial funding brokerage in Houston, Texas, not a lender, and a contractor's request is read first and placed second. A funding specialist reads the work-in-progress schedule, the backlog, the aging with retainage separated, the bonding letter and the bank statements, says what to build where those do not exist yet, and 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.
One file goes to all of those sources at once: banks and asset-based lenders for the line, specialty lenders for mobilization and materials, construction factors for the billings, equipment lenders for the fleet, and SBA lenders for the shop or the acquisition. 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. Start with Stephanie, the AI lending assistant, who pre-qualifies a request in a few minutes with a soft credit pull, or book a free 30-minute call with a funding specialist.
Frequently asked questions
Can a construction company get a business loan?
Yes, from lenders built for the trade. Banks and asset-based lenders write lines of credit sized to backlog, specialty lenders fund mobilization and materials, construction factors buy verified progress billings, equipment lenders finance the fleet, and SBA lenders fund a shop or an acquisition. Contractors are eligible for SBA loans under 13 CFR 120.110, subject to the lender's own credit policy. The file needs a work-in-progress schedule to be read properly.
Why do banks decline contractors so often?
Because the file usually cannot answer the questions a construction credit raises: whether the open jobs are profitable, when the draws will arrive, how much is held in retainage, and who in the payment chain can delay the receivable. Tax returns and bank statements cannot show that. A work-in-progress schedule, a backlog report and an aging that separates retainage can, and a contractor who brings them is underwriting a different loan.
How do contractors finance materials and payroll before the owner pays?
With credit built for the gap. A line of credit funds payroll and materials and is paid down as draws arrive. Mobilization funding advances the cost of starting a specific job against that contract. Materials financing pays the supplier directly and is repaid from the draw that bills the materials. Construction factoring buys a verified progress billing and advances most of it within days, with retainage excluded. Each lender underwrites the job and the payer.
Can a contractor finance equipment after a bank decline?
Usually, yes. Equipment lenders underwrite the machine as much as the contractor: a serial number, a used-equipment market with auction results and a lien on the title or a UCC filing. Lenders that decline contractors for an unsecured line routinely write them for an excavator or a truck. Equipment lenders commonly ask for 10 to 20 percent down on used machines, and a paid-off fleet can be refinanced for working capital.
What should a contractor bring to a funding conversation?
A current work-in-progress schedule with over- and under-billings explained, a backlog report of signed contracts, a receivables aging by job with retainage shown separately, the surety's capacity letter, trade licenses and insurance certificates, two years of business and personal tax returns, a current profit and loss and balance sheet, twelve months of bank statements with draws marked, and a one-page note on what the money is for and which jobs repay it.
Financing for this industry
- Business Funding — Eight programs, one file, 160+ lenders.
- Unsecured Business Loans — Term loans and lines without specific collateral, for businesses with steady deposits.
Related industries
MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.