Funding construction businesses

How construction businesses typically fund growth

UK construction operates on payment terms that few other sectors would tolerate. Main contractors bill against progress milestones, but those milestones are valued by an engineer, paid net of retention, and frequently delayed by contract disputes. Sub-contractors carry materials and labour cost from week one and recover it months later, sometimes years later in the case of retention releases on multi-phase schemes.

The capital structure that supports this is layered. Plant and equipment is typically funded through asset finance, often refinanced periodically to release equity for new contract starts. Working capital sits on an overdraft, an invoice-finance facility, or a project-by-project funding line depending on the contract mix. Larger contractors and developers carry development finance against the build itself, blended with senior debt and sometimes stretched senior or mezzanine layers.

What lenders look at in construction files

Specialist construction lenders triangulate three things: the order book and pipeline, the historic margin trail through completed projects, and the working-capital position at the bottom of each project cycle. JCT retention exposure is read separately from gross debtors, because two-year retention release sits outside any normal credit insurance and is uncollectible if the contractor under it has gone into administration.

Sub-contractor files carry their own underwriting pattern. Domestic-reverse-charge VAT changes the cashflow profile materially, and lenders want to see that the borrower has modelled cash on a post-DRC basis rather than a pre-2021 basis. Plant condition reports from independent valuers carry weight when asset finance is layered or refinanced. Health-and-safety and modern-slavery compliance are not just contract requirements; they affect the borrower's ability to win the next contract and therefore the lender's exit certainty.

Product overlap

Bedrock places construction files across asset finance for plant, vehicles, and yellow kit, invoice finance for working capital against the application-for-payment ledger (where the funder is comfortable with construction-style receivables), property finance and development finance for self-build operators, and cashflow loans for restructure events, MBOs, or one-off contract starts that need a step-up in working capital.

Worth checking before you apply

The single hardest underwriting question in construction is the retention book. Most contractors carry meaningful retention receivables from contracts completed twelve to twenty-four months ago. Files that age that retention realistically (some of it will never come back) read as credible. Files that show retention at gross value with no discount get repriced once the underwriter does the discounting themselves.

Lien risk on receivables catches some borrowers out. Some invoice-finance lenders will not advance against payments where a subcontractor has lien rights that could outrank the financier. Specialist construction IF lenders structure around this; non-specialists tend to decline mid-deal once it surfaces.