Guides

The Contractor's Working Capital Field Guide

Where each construction trade's cash gap sits in the build sequence, the three gap types (mobilization, draws, closeout) and how to size funding to the gap.

The contractors we talk to describe the same problem in a dozen different words. The excavator says fuel and rentals. The mason says brick deposits. The painter says the general contractor is sixty days behind. The general contractor says the draw inspector has not been out yet. It is one problem, money leaving before money arrives, but it shows up at a different point in the job for every trade, and the right fix depends on where.

This guide is the map. It lays out the trades in the order they typically appear on a building, names the three kinds of cash gap a construction business can have, shows how to size funding to the one you actually have, and is plain about when revenue-based capital is the wrong tool.

Your place in the build sequence decides where your cash gap sits

Most of the hands on a building belong to specialty trades working as subcontractors. According to the Bureau of Labor Statistics, specialty trade contractors (the firms that pour concrete, prepare sites, wire, plumb and paint) employ more than five million people, more than half of everyone working in construction, and their production work is usually subcontracted from general contractors or operative builders. That last point matters more than it looks. Most trades are paid on someone else's payment cycle, and where they sit in the sequence decides how long that cycle makes them wait.

Each trade has its own page on where its gap sits and how to fund it: excavation and site work, concrete, masonry, electrical, drywall and insulation, painting, flooring, residential general contractors and home builders, commercial general contractors, and remodeling and restoration.

There are only three kinds of construction cash gap

Strip away the trade vocabulary and every construction cash problem is one of three shapes. Knowing which one you have tells you how big the funding should be, what repays it, and whether funding is the answer at all.

1. The mobilization gap

The front-end hole on a new job: insurance certificates, bond premiums, materials deposits, equipment transport and the first payroll cycles, all spent before the first pay application can even be submitted. It is one-time per job, and it closes when that job's first payments catch up with its costs. Early trades and general contractors feel it hardest. It is also the cleanest gap to fund, because the money that repays it already has a signature on it. Our guide to funding a contract you just won walks through it step by step.

2. The draw-and-retainage gap

The mid-project squeeze. You bill monthly on percent complete, the payment commonly arrives 30 to 60 days or more after the work, and a slice of every payment is often held as retainage. Payroll runs weekly the whole time. The deepest point usually lands in the middle of the job, and it tends to hit labor-heavy middle trades (masonry, drywall, electrical rough-in) hardest. It is structural rather than a sign of trouble, and it repeats every pay cycle until the job winds down. Our progress billing guide works through the math of a mid-project month.

3. The closeout gap

The long tail. After substantial completion come the punch list, inspections, closeout documents and finally the release of retainage. For late trades, that wait follows directly from their own work. For early trades it is worse: a site contractor who finished in month two can wait until the whole building is accepted to see the retainage on that scope. The closeout gap is smaller in dollars than the other two but longer in time, and across several jobs at once it adds up.

Size funding to the gap, not the contract

The instinct after a large award is to think in contract dollars. The number that needs financing is smaller and more specific: the deepest point of the gap between cumulative cash out and cumulative cash in. Here is how to find it.

1. 1

   List every dollar out, week by week

   Deposits, materials, payroll, rentals, insurance and subcontractor payments, from signing to the last payment on the job.

2. 2

   List every dollar in, on realistic dates

   Pay applications on the payer's actual history, less retainage, rather than the contract's ideal terms. First payments on new contracts have a habit of running late.

3. 3

   Find the deepest week

   Run the total of out minus in. The lowest point is the gap. Subtract the cash the business can genuinely commit without starving other jobs.

4. 4

   Add a cushion for a slow payer

   A week or two of costs is a reasonable margin for a late approval or a returned pay application.

5. 5

   Test the payment against your thinnest weeks

   A facility's payment has to sit comfortably inside your slowest stretch, not your average month. If it only works in a good month, it is too big.

Say a hypothetical $300,000 subcontract shows its deepest week at $85,000 short, in week seven, and the business has $25,000 it can commit. The gap to fund is roughly $60,000 plus a cushion. It is not $300,000.

A contractor's file reads well when the pattern is explained

Underwriting reads the business, not the contract: the level of your deposits and how consistent they are over time, how long the business has operated, and how much of its cash flow is already committed to other financing. Construction deposits are lumpy by nature, because draws land in clusters. That lumpiness is read as the shape of the work when it is explained, and as volatility when it is not.

So explain it. One page alongside your statements, listing active jobs, who pays on which cycle, which months carried a large draw, and how much retainage is currently held, turns an erratic-looking file into a schedule. A direct lender reads that file in-house, which is why the move from signed documents to funds is measured in days, not weeks.

When revenue-based capital is the wrong tool

• A recurring shortfall. If every job ends with the same hole, the gap is not timing. It is pricing, overhead or payment terms, and short-term capital deepens it.
• An underbid job. Capital buys time, not margin. If the job only pencils when everything goes right, fix the price or pass on the work.
• Equipment that wants a term lien. A machine that works for seven years should be paid for over years through equipment finance secured by the machine, not out of a short-horizon facility.
• A disputed receivable or an unapproved change order. Fund approved work, not arguments.
• Payments on existing advances. Adding a position to cover another is how a cash gap becomes a cash spiral. Pay one or two down first.
• Cheaper money that fits your file and your timeline. If a bank line or an SBA loan is available to you and the job can wait for it, take it. A good advisor will tell you so.

And before funding any gap, ask the customer. A mobilization line item in the schedule of values, a materials deposit, or reduced retainage once the job passes the halfway mark are all common requests, and the cheapest bridge is the one your customer funds.

Express Capital is a direct lender: our own capital, decisions made in-house, one dedicated advisor per file. Most of our clients come back, which says less about us than about the model: funding sized to a real job and repaid on the job's own schedule tends to leave an owner ready to bid the next one.

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