A contractor can be profitable on paper and still miss payroll. You buy materials and pay crews this month, bill the general contractor at month end, wait for the owner to pay the GC, and then wait again for the GC to pay you, minus retainage that may not come back until the job closes. Construction financing is mostly about bridging that gap without giving away the margin you bid.
This guide covers each realistic contractor financing option, what it costs as of November 2026, published minimums, how bonding fits in and which tool fits which job. Every figure links to its source.
Why contractor financing is different
Contractors need financing that bridges slow, staged payments, carries retainage, supports bonding and pays for expensive equipment. Few other industries face all four at once.
Progress billing means you finance the work first. You bill as work is completed, usually monthly, and payment follows weeks later. Federal work shows the shape of the chain. Under the Federal Acquisition Regulation's prompt payment clause, the government's due date for a progress payment is 14 days after the billing office receives a proper request, and the prime contractor must then pay subcontractors within 7 days of receiving payment. On private jobs, the timing is whatever your contract and your state's prompt payment law say, and pay-when-paid terms can push you to the back of the line.
Retainage holds back part of every bill. Owners and GCs keep a share of each progress payment until the work is finished. On federal contracts, FAR 32.103 says retainage "shall not exceed 10 percent of the approved estimated amount" and must be paid promptly at completion. The same FAR clause lets primes and subs retain a percentage from their own subcontractors on terms they agree. On a thin-margin job, 10% held back can be more than the profit on the work billed.
Bonding controls which jobs you can bid. The Miller Act requires performance and payment bonds on federal construction contracts over $150,000, per FAR 28.102-1. Other owners can require bonds by contract. A surety's view of your working capital and credit sets how large a job you can take.
Equipment is heavy and expensive. The upside is that excavators, loaders and trucks can be financed against their own resale value.
Survival is about average; demand is the volatile part. Of construction establishments that opened in March 2020, Bureau of Labor Statistics survival data shows 83.2% were still operating a year later and 56.3% after five years, slightly better than the 80.9% and 51.3% for all private industries. The pipeline is less steady. In the AGC and Sage 2026 Construction Hiring and Business Outlook, surveyed in late 2025, 63% of firms said an owner had postponed or canceled a project in the previous six months, 53% named materials costs among their biggest concerns for 2026, and 36% named high interest rates or financing costs.
Contractor financing options, one by one
The core tools are invoice factoring, a line of credit, equipment financing, SBA 7(a) loans and CAPLines, and surety bonds, with merchant cash advances as an expensive last resort.
Invoice factoring
Factoring turns an approved invoice into cash now: the factor advances most of its value, collects from your customer and pays you the rest minus its fee. It is underwritten mainly on your customer's credit, which suits a subcontractor billing creditworthy GCs.
altLINE, a division of The Southern Bank Company, publishes its terms on its construction factoring and factoring rates pages:
- Advance rate: 80% to 90% of the invoice.
- Fee: an initial fee of roughly 0.5% to 3.5% for about the first 30 days (the two pages give slightly different ranges), then incremental fees while the invoice stays open. Its own worked example uses 1.5% for the first 30 days plus 0.5% for every 10 days after.
- Credit: no minimum credit score for you; the factor reviews your customers' credit and payment history.
Neither page says whether altLINE buys progress billings or retainage, so ask any factor which invoices it will buy. Our list of the best invoice factoring companies compares more providers.
Business line of credit
A line of credit is the cheapest flexible tool for buying materials and meeting payroll ahead of a progress payment, if you qualify. Published requirements, checked November 2026:
| Lender | Minimum credit | Time in business | Revenue |
|---|---|---|---|
| Bluevine | 625 FICO | 12 months | $10,000 a month |
| OnDeck | 625 FICO | 1 year | $100,000 a year |
Bluevine lends up to $250,000, at rates "as low as 7.8% for top qualifying customers," and only to corporations and LLCs, so a sole proprietor contractor is not eligible. OnDeck reports an average APR of 59.8% on lines of credit originated in the half-year ending June 30, 2026.
Equipment financing
Equipment financing uses the machine as collateral, so approval leans on the asset as much as on your credit. National Funding, for example, publishes equipment financing up to $150,000 over 2 to 5 years, requires six months in business and a vendor quote, and says most of its customers have a personal FICO of 600 or higher. It does not publish rates. For larger fleets, an SBA loan can run longer: SBA's 7(a) terms page allows terms beyond 10 years for equipment with a useful life over 10 years, and SBA 504 loans finance long-term machinery with a useful life of at least 10 years, per SBA's 504 page. See our best equipment financing lenders.
Ask your accountant about Section 179 before year end. For tax years beginning in 2026, the expensing limit is $2,560,000, phasing out once qualifying purchases pass $4,090,000, per IRS Revenue Procedure 2025-32.
SBA 7(a) loans and CAPLines
SBA's 7(a) program has three products built for contractors' cash cycles, on top of the standard term loan. Facts from SBA.gov, checked November 2026:
- Standard 7(a): up to $5 million, per SBA's 7(a) loans page, for equipment, real estate, working capital and refinancing. Variable rates are capped at the base rate plus 6.5% for loans of $50,000 or less, plus 6.0% from $50,001 to $250,000, plus 4.5% from $250,001 to $350,000, and plus 3.0% above $350,000, per SBA's terms page. With prime at 7.00% in the Federal Reserve's H.15 release of November 6, 2026, the caps are 13.50%, 13.00%, 11.50% and 10.00%.
- Contract CAPLine: "finances the costs of one or more specific contracts," including allocable overhead, per SBA's types of 7(a) loans page. CAPLines can run up to 10 years.
- Builders CAPLine: for small general contractors who build or renovate residential or commercial property for resale. Its maturity is capped at 60 months plus the estimated construction time, per the same page.
- 7(a) Working Capital Pilot: a monitored line of credit up to $5 million with a maximum maturity of 60 months, for businesses with at least one year of history that can produce timely financial statements and receivables agings and need a line "to fulfill large contracts or projects," per the 7(a) loans page.
Every owner of 20% or more must sign an unlimited personal guarantee, per SBA's Form 148 page. SBA's current lending rules are SOP 50 10 Version 8.1 with Technical Updates, effective October 1, 2026. Our SBA loans guide covers the application process.
Surety bonds and the SBA bond guarantee
SBA's Surety Bond Guarantee program helps small contractors get bonded when a surety would otherwise say no. Per SBA's surety bonds page, SBA guarantees bid, performance and payment bonds issued by participating sureties on contracts up to $9 million for non-federal work and $14 million for federal work. The guarantee fee is 0.6% of the contract price for performance and payment bonds, and bid bond guarantees carry no fee. On a $2,000,000 contract, that SBA fee is $12,000, separate from the surety's own premium. You must be small under SBA size standards and meet the surety's own credit, capacity and character requirements.
Merchant cash advances
A merchant cash advance buys a share of future revenue for a fixed payback, collected by daily or weekly debits, and it rarely fits construction. Credibly, for example, publishes factor rates starting at 1.11, terms of 3 to 24 months, and minimums of a 550 credit score, six months in business and $20,000 in average monthly revenue. Fixed withdrawals against lumpy receipts that arrive when the GC pays is the mismatch that pushes contractors into a second advance. Read our explainer on how merchant cash advances work before signing one.
What it costs: a worked example with retainage
Factoring a progress billing costs a few percent of the invoice per month, and retainage stays unfunded until the job closes. Take a hypothetical concrete subcontractor that bills a GC $200,000 for a month's work under a contract with 10% retainage, and expects payment 60 days after billing.
Step 1: retainage. The GC holds $20,000 (10% of $200,000). The approved, payable amount is $180,000.
Step 2: the advance. At an 85% advance rate (within altLINE's 80% to 90% range), the factor pays $153,000 now ($180,000 × 0.85).
Step 3: the fee. Using altLINE's own published example structure, 1.5% for the first 30 days plus 0.5% for each 10 days after, an invoice paid on day 60 costs 1.5% + 0.5% + 0.5% + 0.5% = 3.0% of face value: $180,000 × 3.0% = $5,400.
Step 4: the rebate. When the GC pays on day 60, the factor releases $180,000 minus $153,000 minus $5,400, or $21,600.
Step 5: retainage. The $20,000 comes back only at project completion, under the contract's terms.
So the subcontractor turned $200,000 of work into $153,000 today, $21,600 in two months and $20,000 at closeout, for $5,400. That fee is 3.5% of the cash advanced for 60 days, or roughly 21% a year on a simple annualized basis.
Compare the same $153,000 drawn on a line of credit for 60 days, using simple interest:
- At 10% a year: about $2,515
- At Bluevine's advertised floor of 7.8%: about $1,962
- At OnDeck's reported 59.8% average line APR: about $15,040 (APR includes fees, so this is approximate)
With a strong file, a bank or SBA line is the cheapest answer. A newer firm with good GC customers but thin credit may find factoring cheaper than the line it can actually get.
Key takeaway: Price every option on the same cash for the same days. Then budget retainage as money you will not see until the job is done.
Bonding capacity and how financing affects it
Your bonding capacity is the job size a surety will back, and it depends on the same balance sheet your lenders read. SBA's surety page names the surety's tests as credit, capacity and character. In practice, the decisions you make about debt show up in that review:
- Short-term debt shrinks working capital. Working capital is current assets minus liabilities due within a year, so advances and short loans cut it in full, while only the current-year portion of a long equipment loan counts against it.
- Clean financial statements matter. The SBA Working Capital Pilot asks for timely statements and receivables agings. Producing them monthly also gives a surety agent something concrete to review.
- Liens travel. A lender's blanket lien on receivables can complicate factoring later, and a factor's lien can complicate a bank line. Map who holds a lien on what before you add another lender.
If you are just starting to bid bonded work, ask a surety agent who participates in the SBA program.
Who qualifies for contractor financing
Most contractor financing requires 6 to 12 months in business and a personal credit score in the mid-500s to mid-600s, except factoring, which leans on your customers' credit. Published minimums, checked November 2026:
| Product and provider | Credit score | Time in business | Revenue or other |
|---|---|---|---|
| Factoring, altLINE | No minimum for you | Not published | Creditworthy customers |
| MCA, Credibly | 550 | 6 months | $20,000 a month |
| Equipment, National Funding | Most customers 600+ | 6 months | Vendor quote |
| Line of credit, Bluevine | 625 | 12 months | $10,000 a month; LLC or corp |
| Term loan or line, OnDeck | 625 | 1 year | $100,000 a year |
| SBA 7(a) Working Capital Pilot | None set on SBA.gov | 1 year | Statements and agings |
| SBA surety guarantee | Surety's own review | Not stated on SBA.gov | Small under SBA size rules |
When small businesses are denied, the Fed's 2026 Report on Employer Firms found the most cited reasons were strict lender requirements (46%), too much existing debt (37%) and a low credit score (30%).
To see which of these you would clear without applying to each lender, check what you qualify for on Loanistry.
Which option fits which situation
Match the financing to the length of the gap and the life of the asset.
| Situation | Best fit | Why |
|---|---|---|
| Waiting 30 to 90 days on a GC | Line of credit or factoring | Covers payroll and materials until payment |
| Thin credit, strong GC customers | Factoring | Underwritten on your customers |
| A specific large contract | SBA Contract CAPLine or Working Capital Pilot | Built for contract costs and project lines |
| Building homes or commercial space to sell | SBA Builders CAPLine | Term tied to construction time |
| New excavator or truck | Equipment financing or SBA 7(a) | Asset secures the loan; term matches useful life |
| Bidding bonded public work | SBA Surety Bond Guarantee | Bonds on contracts up to $9 million, or $14 million federal |
| Yard or shop purchase | SBA 504 or 7(a) | Long fixed or capped rate |
| Emergency with nothing else available | One MCA, short | Fast, but fixed debits fight lumpy receipts |
A common setup for a growing contractor is a line or factoring facility for receivables, equipment loans for the fleet and a bonding relationship. To compare offers across those categories, see your options on Loanistry.
Pitfalls to avoid
The costliest contractor financing mistakes are stacking advances, signing guarantees unread and funding long assets with short money.
MCA stacking. A second advance taken to cover the first one's daily debits adds a second set of withdrawals while you still wait on the same GC. In January 2025 the New York Attorney General announced a $1.065 billion judgment against MCA provider Yellowstone Capital, which it said charged rates of up to 820% a year and collected fixed daily amounts from more than 18,000 businesses nationwide with little connection to their actual revenue.
Personal guarantees. SBA loans require an unlimited guarantee from each 20% owner, and Bluevine's line refers to the borrower's role "as guarantor." Read whether a guarantee is limited or unlimited, and ask your surety agent whether its indemnity agreement covers you personally.
Short money for long assets. Paying for a $250,000 loader with a 12-month loan or an advance creates payments that one slow month can break. Match the term to the machine.
Counting retainage as cash. Retainage is a receivable that may not arrive for months, and you should not assume any lender or factor will advance against it. Budget as if it does not exist until closeout.
Factoring contract fine print. Check whether the agreement is recourse (you buy back unpaid invoices), whether it has monthly minimums or a long term, and which invoices the factor will buy.
How to prepare before you apply
Lenders and sureties move faster when you hand them a clean job-level picture. Gather:
- Business bank statements for recent months and your last two business tax returns.
- A current receivables aging and payables aging.
- A work-in-progress schedule showing contract value, billed to date, cost to date and retainage held by job.
- Copies of the contracts behind any invoices you plan to factor.
- Equipment quotes and a fleet list with existing liens.
- Your bonding history, including your largest completed bonded job.
Sources
- Acquisition.gov: FAR 52.232-27, Prompt Payment for Construction Contracts, checked November 2026
- Acquisition.gov: FAR 32.103, Progress payments under construction contracts, checked November 2026
- Acquisition.gov: FAR 28.102-1, Performance and payment bonds, general, checked November 2026
- U.S. Bureau of Labor Statistics: Survival of private sector establishments by opening year, Construction, checked November 2026
- U.S. Bureau of Labor Statistics: Survival of private sector establishments by opening year, all private industries, checked November 2026
- AGC and Sage: 2026 Construction Hiring and Business Outlook, checked November 2026
- altLINE: Construction Invoice Factoring, checked November 2026
- altLINE: Invoice Factoring Rates Explained, checked November 2026
- Bluevine: Business Line of Credit, checked November 2026
- OnDeck: Business Loan Requirements, checked November 2026
- National Funding: Equipment Financing and Leasing, checked November 2026
- IRS: Revenue Procedure 2025-32, checked November 2026
- U.S. Small Business Administration: 7(a) loans, checked November 2026
- U.S. Small Business Administration: Types of 7(a) loans, checked November 2026
- U.S. Small Business Administration: 7(a) terms, conditions, and eligibility, checked November 2026
- U.S. Small Business Administration: 504 loans, checked November 2026
- U.S. Small Business Administration: SOP 50 10, Lender and Development Company Loan Programs, checked November 2026
- U.S. Small Business Administration: SBA Form 148, Unconditional Guarantee, checked November 2026
- U.S. Small Business Administration: Surety bonds, checked November 2026
- Federal Reserve: H.15 Selected Interest Rates, checked November 2026
- Federal Reserve Banks: 2026 Report on Employer Firms, Small Business Credit Survey, checked November 2026
- Credibly: Merchant Cash Advance for Small Business, checked November 2026
- New York Attorney General: $1 Billion Settlement with Predatory Lender Yellowstone Capital, checked November 2026