2 min read
Why construction funding differs from other sectors
Construction companies routinely carry large upfront costs — materials, subcontractor mobilisation, plant hire — weeks or months before a client pays a certified valuation. This creates a persistent working capital gap that standard overdraft facilities rarely bridge adequately.
Contracts also introduce concentration risk: a single large project can dominate a company's debtor book. Lenders familiar with the sector understand retention clauses, JCT or NEC payment schedules, and the distinction between certified and uncertified sums. General-purpose lenders often do not.
Contract and debtor finance
Invoice finance and contract-based facilities allow a construction company to draw against certified valuations or raised invoices rather than waiting for client payment. Specialist providers can lend against applications for payment even before a certificate is issued, provided the contract and employer are creditworthy.
Retention finance is a separate product aimed at releasing funds tied up in retention monies — sums withheld by the client until defects liability periods expire. This can represent 3–5% of total contract value and is effectively dead capital until released.
Plant, equipment, and vehicle finance
Heavy plant, powered access equipment, scaffolding systems, and commercial vehicles are typically financed through hire purchase or finance lease rather than purchased outright. This preserves working capital for direct project costs and aligns the repayment period with the useful life of the asset.
Sale and leaseback of existing owned plant is an option for established companies seeking to unlock equity already tied up in depreciating assets.
Development and bridging finance
Construction companies acting as developer-builders — building out speculative residential or commercial schemes — require development finance structured around a schedule of works and drawdown tranches. These facilities are typically short-term, interest-rolled, and repaid on practical completion or sale.
Bridging loans serve a narrower purpose: acquiring a site or property quickly before a longer-term facility is arranged. Interest rates and arrangement fees are materially higher than term lending; bridging should be used only where exit is clearly defined.
Matching facility to business model
A civil engineering subcontractor with multiple small public-sector contracts has different funding needs from a main contractor delivering a single £10m commercial fit-out. The right structure depends on client concentration, contract type, payment terms, and the proportion of turnover tied up in plant versus labour.
Directors should map cash-flow timing for each contract type before selecting a facility. A lender experienced in construction will stress-test scenarios including contractor insolvency, retention disputes, and variation delays.
Frequently asked questions
Can a construction company borrow against retention before it is released?
Yes — specialist retention finance facilities allow companies to draw a proportion of outstanding retentions, with the lender taking an assignment over those sums. Eligibility depends on the creditworthiness of the employing client and the stage of the defects liability period.
Is invoice finance suitable if most contracts use applications for payment?
Some invoice finance providers will only lend against raised VAT invoices, which can lag certified applications by weeks. Specialist construction finance providers can structure facilities around certified valuations; this is a key question to ask any proposed lender.
Does Credicorp lend to construction companies?
Credicorp provides commercial lending to UK limited companies and LLPs. Specific appetite and terms depend on individual circumstances — contact us for a discussion.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.