Construction and contractor financing is business funding used to cover equipment, materials, payroll, bonding, and the gap between doing the work and getting paid. The most common options are equipment loans, business lines of credit, invoice factoring, SBA loans, and revenue-based financing. Many of these products fund $10,000 or more, accept credit scores as low as FICO 500 when they are underwritten on revenue, and can deliver capital in as little as the same day to 48 hours.
Contractors face a specific problem: money goes out (crew, fuel, lumber, subs) weeks or months before a client pays the invoice or releases retainage. The right financing smooths that timing gap so you can take on more jobs without draining your bank account. This guide breaks down each option, what it costs, and how to qualify.
Key takeaways
- Common contractor financing options: equipment loans, business lines of credit, invoice factoring, SBA loans, term loans, and revenue-based financing.
- Many products fund $10,000 or more, with amounts reaching $500,000+ for equipment and SBA loans.
- Revenue-based financing and factoring can approve FICO scores as low as 500 because they underwrite on deposits and receivables.
- Funding speed ranges from same-day to 48 hours for revenue-based products, versus 3–8 weeks for SBA loans.
- Invoice factoring typically advances 80%–95% of an invoice up front, with the remainder paid (minus a 1%–5% fee) when the client pays.
- Retainage of 5%–10% is commonly held on construction payments until project closeout, worsening cash-flow gaps.
- Factor rates (e.g., 1.15–1.49) are flat multipliers, not APRs, so the effective cost can be higher than it appears.
- Most revenue-based lenders want at least $10,000–$15,000 in monthly business deposits and 6+ months in business.
- Standard application documents include 3–6 months of bank statements, a photo ID, and a voided check.
- Reverse consolidation lowers the total daily or weekly payment to free up cash flow, rather than acting as a traditional buyout.
Why construction cash flow is different
Unlike a retail shop that gets paid at the register, contractors typically finance the job themselves for weeks. You pay for materials and labor up front, invoice on milestones or completion, and then wait 30 to 90 days (or longer) to collect. General contractors also hold retainage — often 5% to 10% of each payment — until the whole project closes out.
This creates three predictable pinch points:
- Job startup — buying materials and mobilizing a crew before any money comes in.
- Payroll and progress — meeting weekly payroll while draws are still pending.
- Growth — landing a bigger contract than your current cash reserves can float.
Because revenue is lumpy and seasonal, lenders that understand the trades focus on your deposit history and receivables rather than only your credit score.
Main financing options for contractors
There is no single "contractor loan." Instead, you match a product to the specific need. Here are the core options.
- Equipment financing — a loan or lease to buy trucks, excavators, lifts, or tools. The equipment secures the loan, so rates are usually lower and terms run 2 to 7 years.
- Business line of credit — a revolving limit you draw from as needed and repay as invoices clear. Ideal for recurring material and payroll gaps.
- Invoice factoring / financing — advances cash against unpaid invoices, typically 80% to 95% up front, with the rest (minus a fee) when the client pays.
- SBA loans (7(a) and 504) — lower-cost, longer-term government-backed loans for established contractors; slower to fund but strong terms.
- Term loans — a lump sum repaid over a fixed period, good for a defined project or expansion.
- Revenue-based financing — funding repaid from a percentage of daily or weekly deposits; approvals lean on sales volume, so FICO 500+ can qualify.
- Business credit cards — useful for smaller material buys and fuel, with rewards, but higher rates if carried.
Compare the options: cost, speed, and fit
Costs are expressed differently depending on the product. Traditional loans and lines quote an APR (annual percentage rate that includes fees). Revenue-based products often quote a factor rate — a multiplier like 1.15 to 1.49, meaning you repay $1.15 to $1.49 for every $1 borrowed regardless of how fast you repay. Factoring is priced as a fee per invoice period.
| Option | Typical amount | Cost | Speed to fund | Min. FICO | Best for |
|---|---|---|---|---|---|
| Equipment financing | $10,000–$500,000+ | ~7%–30% APR | 1–5 days | 600+ | Buying trucks/machinery |
| Business line of credit | $10,000–$250,000 | ~10%–60% APR | 1–3 days | 600+ | Recurring cash-flow gaps |
| Invoice factoring | Up to invoice value | ~1%–5% per 30 days | Same day–48 hrs | No hard minimum | Slow-paying clients |
| SBA 7(a)/504 | $50,000–$5M | ~Prime + 3%–6% | 3–8 weeks | 650+ | Low-cost expansion |
| Term loan | $10,000–$500,000 | ~9%–45% APR | 1–3 days | 600+ | Defined projects |
| Revenue-based financing | $10,000–$500,000 | 1.15–1.49 factor rate | Same day–48 hrs | 500+ | Fast cash, lower credit |
Ranges are illustrative and vary by lender, revenue, time in business, and market conditions.
How to qualify (and what documents you'll need)
Approval odds and pricing come down to a few core factors. The more of these you can show, the better your terms.
- Time in business — 6+ months unlocks revenue-based options; 2+ years opens banks and SBA.
- Monthly revenue and bank deposits — most revenue-based lenders want at least $10,000–$15,000/month in deposits.
- Credit score — 500+ works for revenue-based products; 650+ widens access to lower-cost loans.
- Receivables quality — for factoring, lenders care more about your customer's creditworthiness than yours.
- Existing debt and daily obligations — lenders check how much of your deposits are already committed.
Typical documents: a one-page application, 3 to 6 months of business bank statements, a driver's license, a voided check, and (for larger loans) tax returns, a profit-and-loss statement, and an accounts-receivable aging report. Equipment financing may also require a quote or invoice from the vendor.
Managing existing advances and stacked payments
Many contractors take on short-term financing during a busy stretch, then find that several overlapping daily or weekly payments are squeezing cash flow — especially when the season slows. If you are carrying multiple positions, reverse consolidation is a structure designed to ease that pressure. Rather than a traditional buyout, it works by injecting funds that cover your existing daily debits while you make a single, lower daily or weekly payment — the goal is to free up working capital day to day.
Before adding any new financing, calculate your total daily debit across all obligations and compare it to your average daily deposits. If payments are consuming a large share of incoming cash, restructuring to lower the daily payment can restore breathing room and prevent missed payroll. Always confirm the total cost and term of any new arrangement in writing.
Choosing the right product for the job
Match the tool to the timing:
- Need a specific machine or truck? Use equipment financing so the asset itself secures a lower rate.
- Waiting on 30–90 day invoices? Factoring or a line of credit bridges the gap without adding fixed debt.
- Have strong credit and time? An SBA or bank term loan is the cheapest long-term capital.
- Need cash today with imperfect credit? Revenue-based financing funds fast on your deposits, at a higher cost.
A practical rule: use short-term, higher-cost money only for opportunities that pay it back quickly (a job with a clear margin), and reserve long-term, low-cost debt for durable assets and expansion. Read every offer for the true total repayment amount, the payment frequency, any origination or factoring fees, and prepayment terms before you sign.
Frequently asked questions
What credit score do contractors need for business financing?
It depends on the product. Revenue-based financing and invoice factoring can approve contractors with a FICO around 500+ because they underwrite on bank deposits and receivables. Lower-cost options like equipment loans, bank lines of credit, and SBA loans typically want 600–650+.
How fast can a contractor get funded?
Revenue-based financing and invoice factoring can fund the same day to within 48 hours once documents are in. Equipment and term loans usually take 1–5 business days, and SBA loans can take 3–8 weeks due to the underwriting process.
What is the difference between a factor rate and an APR?
An APR is an annualized rate that includes fees and accounts for how quickly you repay. A factor rate is a flat multiplier — for example 1.30 means you repay $1.30 per $1 borrowed no matter the timeline. Because a factor rate does not decrease with early payment, its effective cost can be much higher than the number suggests.
Can I get financing for materials before a job starts?
Yes. A business line of credit is the most common way to cover upfront materials and mobilization, since you draw only what you need and repay as the client pays. Some suppliers also offer material financing or trade credit terms directly.
How does invoice factoring work for contractors?
You sell an unpaid customer invoice to a factoring company, which advances roughly 80%–95% up front. When your client pays the invoice, you receive the remaining balance minus the factoring fee (often 1%–5% per 30-day period). It turns slow receivables into immediate cash.
What documents do I need to apply?
For most fast funding: a short application, 3–6 months of business bank statements, a photo ID, and a voided check. Larger or lower-cost loans may also require tax returns, a profit-and-loss statement, and an accounts-receivable aging report.
I have several daily payments already. What can I do?
If overlapping advance payments are straining cash flow, a reverse consolidation can lower your total daily or weekly payment to free up working capital, rather than functioning as a traditional buyout. First total your daily debits against your average deposits, then compare the full cost and term of any restructuring offer in writing before committing.
Is equipment financing better than a term loan for buying a truck?
Usually yes for a specific asset. In equipment financing the equipment secures the loan, which tends to mean lower rates and longer terms (2–7 years). A general term loan is better when you need flexible cash that is not tied to one purchase.
