Construction finance built around stage payments

Construction finance mainly bridges the gap between paying for a job and being paid for it, and funds the plant and vehicles needed to win the next one. The pressure usually comes from timing, not profit.

A new project starts with mobilisation costs: site set-up, materials, plant and weekly wages. Income then follows the contract's payment cycle, usually a monthly valuation, a due date and a final date for payment. On a new job, that can mean several weeks of costs before the first payment arrives.

The Construction Act gives some protection. Most construction contracts must include an adequate payment mechanism, and a payer who intends to pay less than the notified sum usually has to serve a pay less notice in time. Knowing these dates helps you and a lender predict cash flow.

The right product depends on what is causing the gap, and many contractors use more than one.

• Waiting on applications and valuations: invoice finance can release cash against certified or agreed amounts. Some providers specialise in construction; others only fund completed, undisputed invoices.
• Plant and machinery: business hire purchase spreads the cost of excavators, telehandlers and access equipment, and you own them after the final payment.
• Vans and pick-ups: vehicle and fleet finance covers single vans or a growing fleet.
• Owned plant with no finance on it: asset refinance can release cash from kit you already own, which may help fund the early costs of a new contract.
• Mobilisation and short-term gaps: working capital loans can cover labour and materials on a new job before the first valuation is paid.
• Corporation tax and other HMRC bills: tax bill loans spread the cost, which can help protect your compliance record.

Lenders want to see that your work is valued and paid without frequent disputes, and that you are not overly reliant on one main contractor or client.

• Your position in the supply chain: main contractor, tier 1 or tier 2 subcontractor, or specialist trade
• Contract types, payment terms, set-off rights and how retentions are calculated
• How often valuations are reduced, disputed or paid late
• How much of your turnover comes from your largest customers
• Your CIS status and whether you hold gross payment status
• The age, condition and resale value of any plant to be financed or refinanced

Depending on the product, expect lenders to ask for most of the following.

• Latest filed accounts and up-to-date management accounts
• A schedule of current contracts showing value, progress and expected completion
• Recent applications for payment, payment notices and any pay less notices
• A retention ledger showing amounts held and expected release dates
• For asset finance, supplier quotes or a list of owned plant with ages and serial numbers

Good habits make funding easier to arrange.

• Submit applications on time and keep evidence of what was agreed on site.
• Diary retention release dates and chase them.
• Build CIS deductions and the reverse charge into your cash flow forecast.
• Keep filings and payments to HMRC on time. Late filing or payment can put gross payment status at risk.
• Arrange plant finance before you tender.
• Check how facilities interact. An invoice finance provider may take security over your debts, which can affect other lenders.

We are a commercial finance broker, not a lender. We help established limited companies, LLPs and partnerships of four or more partners in construction find suitable lenders on our panel.

You get a dedicated relationship manager, a real person you can reach by phone, email and chat from your first enquiry until the lender pays out. They will explain which lenders on our panel fund construction work and how the offers compare.

We do not charge you a fee. We are paid a commission by the lender when the finance completes, and you can ask how much it is. Commission can differ between lenders. You can check your eligibility in about 60 seconds without affecting your credit score. Lenders run their own credit checks later, if you decide to apply, and make their own decisions.

Can invoice finance fund applications before they are certified?

Some specialist lenders will, but many only fund amounts that have been certified or agreed, because uncertified applications are more likely to be reduced.

Can I raise finance against retentions?

Some lenders will consider funding against retentions, usually at a lower advance rate than other debts, while others exclude them entirely.

Does losing CIS gross payment status affect finance?

It can. Moving from gross payment to deductions reduces the cash you receive from each payment, and lenders may see it as a sign of problems with HMRC compliance.

Can I finance used plant?

Often, yes. Many asset finance lenders fund used plant, though age, condition and resale value affect the terms, and older or specialist machines may need a larger deposit.

Will directors need to give personal guarantees?

Often. Lenders commonly ask directors of construction companies for personal guarantees, particularly on unsecured and working capital loans. Read our guide to personal guarantees before you sign one.