Contractor Financing Glossary

Funding used to cover day-to-day operating costs—payroll, materials, mobilization, fuel—when client payments are delayed. It bridges the gap between when money goes out and when it comes in. Unlike equipment financing (tied to an asset), working capital supports general operations. It is designed for short-term cash flow gaps rather than long-term capital purchases.

Contractors use working capital when payday arrives before project draws, when materials must be purchased before a milestone payment, or when mobilization costs hit at job start. The need is typically short-term and timing-related, not a sign of long-term profitability issues. Common scenarios: a crew of 10 needs to be paid Friday but the next draw is two weeks out; a supplier requires payment on delivery but the client pays net-60.

Loans or leases for excavators, skid steers, dump trucks, loaders, and other machinery. The equipment secures the financing, which can mean favorable terms and easier qualification than unsecured options. Payments can be structured to align with the revenue the equipment generates. Both new and used equipment may qualify depending on the lender. Instead of paying a large lump sum upfront—which would strain cash flow—financing spreads the cost over time.

When contractors need to purchase or replace equipment without draining cash reserves. The SBA 504 program is commonly used for equipment and real estate. Typical situations: taking on new or larger jobs that require equipment you don't own; replacing a failing excavator or skid steer; expanding the fleet to handle more concurrent projects.

Revolving credit that lets contractors draw when needed and repay when cash arrives. Interest is typically paid only on the amount used. The line remains available for future needs. You do not need to apply for new financing every time a gap appears. This structure is designed for businesses with recurring short-term cash flow gaps rather than a single large need.

Recurring short-term needs—payroll float every few weeks, supplier timing gaps, seasonal slowdowns, or multiple overlapping jobs with staggered payments. Fits when gaps happen regularly rather than as a one-time emergency. Example: a contractor with three jobs in progress faces payday before any of the next draws arrive; a line of credit lets them draw, pay the crew, and repay when the first draw lands.

Financing that bridges payroll when payday arrives before client payments. Covers labor costs until invoices are paid. A subset of working capital focused specifically on the payroll timing problem. The funds are used to meet payroll obligations so crews can continue working. Labor must be paid on schedule; funding covers payroll when project draws have not arrived.

When jobs are profitable but cash arrives too slowly to support payroll. Labor must be paid weekly or biweekly; project draws may not arrive for 30–90 days. Common in commercial and government construction. Net-60 and net-90 terms are standard; retainage can stretch the wait further. The business may be profitable on paper, but the timing creates real pressure.

Converting outstanding invoices into immediate cash. Lenders advance a portion of invoice value (often 70–90%). The contractor repays when the client pays. Also called invoice financing or factoring. The lender may collect directly from the client or the contractor repays when payment is received. Fits when the gap is specifically between invoice and payment, and when invoices are from creditworthy clients.

When work is done and invoices are sent but payment is delayed 30–90 days. Fits when invoices are from creditworthy clients and the gap is specifically between invoice and payment. Government and large commercial projects often have extended payment schedules; receivables financing converts that waiting period into immediate cash.

A term loan for expansion, acquisition, equipment, or larger projects. Fixed repayment schedule. Differs from a line of credit (revolving) and working capital (short-term). Provides a lump sum with a set repayment plan. SBA loans may offer longer terms and favorable rates for qualifying businesses. This structure works when the need is defined and the repayment can be planned over time.

Expansion into new markets, acquisition of another company, commercial real estate for a yard or shop, or larger capital needs than short-term products typically provide. Paying from cash flow may not be feasible; a term loan structures the repayment over time, making the investment manageable.