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Business funding for construction & trades: what actually works.

Business Funding for Construction & Trades: What Actually Works

In the construction world, "profit" and "cash flow" are often two entirely different conversations. You can have a $5M backlog and a healthy margin on paper, but if you’re staring down a $150,000 subcontractor payroll on Friday and your GC hasn't released a progress payment in 45 days, you’re in trouble.

I’ve sat on both sides of the table. I’ve seen trade contractors get crushed by the "success trap"—taking on a massive new project only to realize they don't have the liquidity to float the mobilization costs and the first three months of labor.

This guide covers how to bridge those gaps using private credit, focusing on the brutal realities of progress billing, retainage, and the relentless pressure of payroll.

The Triple Threat: Progress Billing, Retainage, and Payroll

Construction is the only industry where you are essentially acting as a bank for your customers.

  1. Progress-Billing Gaps: You bill for work completed in June. The GC approves it in July. The owner pays in August. You’ve already paid for the materials and labor in June. That 60-to-90-day window is where most trades fail.
  2. The Retainage Trap: That 10% the GC holds back until "substantial completion" is usually your entire profit margin. If you’re a mechanical sub on a two-year build, that money is dead capital for 24 months. You need a way to pull that forward.
  3. Subcontractor Payroll: Unlike internal staff, subs don't wait. If you miss a payment to your framing crew or your sparkies, they walk off the job. Once a job site goes cold, the liquidated damages start kicking in, and the project spirals.

Which Summit Products Actually Fit?

At Summit Private Credit, we offer nine distinct products, but for construction, only three truly move the needle. Here is how an operator uses them:

1. Construction Factoring (Spot or Whole-Ledger)

This isn't your grandfather’s factoring. We look at the specific pay application (G702/703).

  • Why it fits: It solves the progress-billing gap. As soon as the architect or GC signs off on the percentage of completion, we can advance up to 80% of that invoice.
  • The Nuance: We can often factor the "current work completed" portion while ignoring the retainage line item, giving you immediate liquidity to start the next phase.

2. Asset-Based Lending (ABL)

If you have a heavy fleet—excavators, cranes, or a massive inventory of raw materials (steel/lumber)—an ABL line is superior to factoring.

  • Why it fits: It's a revolving line of credit based on the total value of your balance sheet. It’s more flexible than factoring because you don't have to submit individual invoices for every draw. It’s perfect for the "mobilization" phase of a project.

3. Purchase Order (PO) Financing

This is specifically for material-heavy trades (HVAC, Electrical, Solar).

  • Why it fits: If you land a contract that requires $500k in equipment before you even turn a wrench, PO financing pays your suppliers directly. This keeps your existing cash reserved for labor.

Realistic Funding Ranges for Trades

| Funding Product | Typical Transaction Range | Best Use Case | | :--- | :--- | :--- | | Spot Factoring | $50k – $250k | One-off large pay-apps or bridging a specific 30-day gap. | | Full Ledger Factoring | $250k – $3M | Managing ongoing payroll for 5+ active job sites. | | Asset-Based Line | $1M – $10M+ | Large-scale civil or specialty subs with heavy equipment. |

Underwriting Quirks: What We Look For

Construction underwriting is different from retail or SaaS. We don't care as much about your FICO; we care about your performance history and your contracts.

Quirk #1: The "Pay-When-Paid" Clause

Most subcontracts have a "pay-when-paid" or "pay-if-paid" clause. Standard banks see this and run. Private credit operators look at the debtor (the GC or the Owner). If you are working for a Tier-1 GC with a massive balance sheet, we are often willing to override the "pay-when-paid" risk because the creditworthiness of the ultimate payor is high.

Quirk #2: Verification of "Percentage of Completion"

We don't just call the GC and ask if they owe you money. We look for the "Inspectors Report" or the architect’s sign-off. If you’re at 60% completion and the GC has signed the G703, that is a fundable asset. If you’ve just "sent an invoice" but no one has verified the work, it’s just a piece of paper.

What Makes a File Fund Fast vs. Get Stuck

I’ve seen $500k wires go out in 48 hours, and I’ve seen $50k deals take three weeks. Here is the difference:

What Funds Fast:

  • The "Job Costing" is Clean: You can show exactly how much labor and material went into the specific invoice you want to fund.
  • No Tax Liens (or a clear Intercreditor Agreement): If the IRS has a lien on your AR, we can’t fund until we have a carve-out or a payment plan in place.
  • The GC is Responsive: We need to verify the debt. If your GC's accounts payable person won't pick up the phone, the deal stops.

What Gets Stuck:

  • Unapproved Change Orders: Never try to fund a change order that hasn't been signed by the owner. It’s a "disputed" invoice in the eyes of a lender.
  • Commingled Funds: If you’re using "Job A" money to pay for "Job B" expenses and your books are
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