Asset-Based Lending for Construction Contractors
Most asset-based lenders decline construction receivables, and it is worth understanding why before you spend three weeks finding out. Progress billings carry retainage held until project completion, pay-when-paid clauses make payment contingent on money flowing down from an owner, mechanics lien and bond claims can jump ahead of a lender security interest, and percentage-of-completion accounting makes the receivable balance a judgment rather than a fact. As of 2026, the contractors who do get financed use one of three structures: an equipment-led facility advancing 70%-80% of liquidation value on owned machinery, a specialist progress-billing facility advancing 70%-80% on approved billings with retainage excluded or advanced at 0%-25%, or contract financing against a single assigned contract. Facilities run $250K to $25MM, price from Prime plus 2%-6%, and close in 15-30 business days. The practical lever most contractors underuse is their equipment, which is often paid for and appraises well.
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Where this fits best
Our sweet spot is $5MM to $50MM in revenue on asks between $250K and $5MM. We work meaningfully smaller and meaningfully larger — we have closed $250K factoring lines and $50MM facilities in the same year. What usually decides fit is your credit, your existing debt, and whether the structure works at all. Size is the last thing we look at, not the first.
- •Sweet spot is $5MM-$50MM in annual revenue and two or more years operating — neither is a cutoff
- •Owned, paid-for equipment — this is frequently the strongest collateral in the business
- •Approved progress billings with documented sign-offs, not invoices you have only submitted
- •A work-in-progress schedule you can actually produce and defend
- •Clean lien and bond history, with no outstanding claims against completed work
What is actually going on
Construction runs on other people money and pays for it in cash flow. You mobilize on a job, carry labor and materials for 30 to 60 days, submit a progress billing, wait for approval, get paid on 45 to 90 day terms, and watch 5% to 10% sit in retainage until the whole project closes out, sometimes a year later. Meanwhile the next job wants mobilization money. The paperwork says the company is profitable and the bank account disagrees. Then the contractor goes looking for a receivables facility and gets declined by lenders who fund manufacturers and staffing agencies without blinking. That is not prejudice; construction receivables genuinely carry risks other receivables do not. Retainage is contingent on completion. Pay-when-paid clauses mean your customer owes you only once the owner pays them. Mechanics lien and bond claims from your own subs and suppliers can take priority over a lender lien on the very same money. And percentage-of-completion accounting makes the receivable balance an estimate that moves when the cost-to-complete estimate moves. The contractors who solve this usually solve it with equipment rather than receivables. A fleet of excavators, cranes, or trucks that is paid for is excellent collateral: it appraises reliably, it has a deep resale market, and none of the offset problems that plague construction AR apply to it. Equipment-led facilities and sale-leasebacks routinely produce more availability than a receivables facility would, and close with less argument. Where receivables do work, it is with lenders who specialize in construction and understand the paperwork. Those lenders advance against approved billings — with the sign-off documented — exclude or heavily discount retainage, and read the contract for pay-when-paid and offset language before quoting. Fewer lenders will look at the file, and the ones who do quote something realistic rather than something that falls apart at closing.
How it works
Start with the equipment schedule
List owned machinery with year, model, hours, and whether it is free and clear. For most contractors this produces the largest single block of borrowing base, at 70%-80% of appraised liquidation value, with none of the offset risk that attaches to progress billings.
Separate approved billings from submitted ones
Only approved billings — with documented owner or general contractor sign-off — are eligible collateral. Submitted-but-unapproved billings are contingent, and lenders treat them accordingly. Tightening the approval cycle creates availability directly.
Carve out retainage explicitly
Expect retainage to be excluded or advanced at 0%-25%. Knowing this at the start prevents the common failure, where a contractor counts $900K of retainage toward availability and finds out at closing that it contributed almost nothing.
Read the contract before quoting the facility
Pay-when-paid clauses, offset rights, assignment restrictions, and the surety agreement all change what a lender can actually rely on. On bonded work the surety consent question comes up early, not at closing.
Match the structure to the job, not the year
Contract financing against a single assigned contract often beats a general facility for a specific large award, especially on public work where an assignment of claims is available. The two structures coexist — a facility for the ongoing book, contract financing for the outlier job.
Terms, costs and timelines
| Facility size | $250K - $25MM |
|---|---|
| Pricing (2026) | Prime + 2%-6% |
| Equipment advance | 70%-80% of appraised liquidation value on owned, free-and-clear machinery |
| Approved progress billings | 70%-80% advance, with documented sign-off required |
| Retainage | Excluded, or advanced at 0%-25% |
| Time to close | 15-30 business days including appraisal and contract review |
| Contract-specific option | Contract financing against a single assigned contract, strongest on public work |
| Deal-stoppers | Active mechanics lien or bond claims, no WIP schedule, unresolved surety issues |
| What lenders read first | The contract — pay-when-paid, offset rights, assignment restrictions, surety agreement |
| Serve fee | A success fee, earned only on closing. Agreed in writing before you sign anything. No retainers, no upfront costs |
Equipment-led financing vs. chasing a receivables facility
| A general receivables facility | An equipment-led structure | |
|---|---|---|
| Who will look at it | Few lenders — most decline construction AR outright | Many, because machinery collateral is understood everywhere |
| What retainage does to it | Excluded or nearly so, which often gutters availability | Irrelevant — the collateral is the equipment |
| Offset and lien risk | Real: subs, suppliers, and sureties can claim the same money | Minimal: a titled asset with a deep resale market |
| Typical availability | 70%-80% of approved billings only | 70%-80% of appraised liquidation value on the fleet |
| Time to close | 15-30 business days, if a lender engages at all | 10-20 business days, appraisal-driven |
| Best combined use | The ongoing billing book, with a construction specialist | The base facility, with contract financing layered on for a large award |
How this plays out, with numbers
A site work contractor doing about $22MM in revenue is carrying $3.4MM in receivables, of which roughly $1.1MM is retainage across seven jobs. It owns an equipment fleet — excavators, dozers, haul trucks — with no liens on most units. The bank line is $1.5MM and fully drawn every spring during mobilization season. The receivables-only path is disappointing on inspection. Excluding retainage and the billings still awaiting owner approval leaves about $1.4MM of approved progress billings eligible, supporting roughly $1.05MM at a 75% advance rate. That is less than the existing bank line and it took three weeks to establish. The equipment changes the picture. An appraisal supports $4.1MM of orderly liquidation value across the free-and-clear units, producing a $3.1MM term facility at 76%. Combined with a $1.05MM revolver against approved billings from a construction-specialist lender, total availability reaches roughly $4.15MM at a blended cost near Prime plus 4%. When the company wins a $6MM municipal award the following quarter, contract financing against the assigned contract covers mobilization without touching either facility. The fleet was the answer the whole time, and it had been sitting in the yard.
A representative structure, sized to a typical file. Details are generalized — we do not publish client specifics.
When this is the wrong answer
Half of being useful is being clear about what does not work. If one of these describes you, the honest path is below — and it may not run through us.
Retainage is either excluded from the borrowing base or advanced at a fraction, because it is contingent on completion and subject to offset. If retainage is most of what you are owed, the answer is equipment-secured financing or a bridge against a specific contract, not a receivables facility.
A construction loan against a project is real estate lending, underwritten on the property and drawn against inspections. That is a different product with different lenders — see our real estate lending page.
Those claims can prime a lender lien on the same receivables. Resolve or quantify them first — a documented resolution is financeable, an open claim usually is not. If it is in progress, say so and we will look at the equipment side in the meantime, which is often the stronger collateral anyway.
A lender cannot underwrite progress billings without it, and the surety already requires one. If job-level cost tracking is not in place, that is the first project — it improves your bonding capacity at the same time.
