There is a particular way good construction businesses fail, and it is not the way people expect. They do not fail from a lack of work. They fail from winning it. A builder running comfortably on jobs of one size wins something two or three times bigger, celebrates properly, then spends six weeks discovering that the contract has to be carried by a bank account sized for the old work.
Every contract has money going out before money comes in. On a small job that gap is a week or two and the account absorbs it. On a bigger job it is longer, deeper and full of payments that cannot be deferred by a phone call. This guide covers what leaves the account before the first progress claim lands, and what to bring to a finance specialist.
What leaves the account before anything comes in
Ask a builder what a job costs and you get the contract sum. Ask what it costs before the first payment and the answer is vaguer, which is the problem. In the opening weeks the money leaving the business includes:
- Materials deposits and supplier accounts. Bigger orders often mean a deposit rather than account terms, especially for anything made to order — steel, trusses, joinery, windows, imported tile. The supplier who gave you thirty days on a small order may want cash up front on a large one.
- Plant and equipment hire. Excavators, scaffold, hoarding, work platforms, site sheds, temporary fencing. Hire is billed from the day it lands on site, not the day you are paid for using it, and scaffold stays up longer than the program said.
- Mobilisation and site establishment. Temporary power and water, amenities, traffic management, survey set-out, signage, waste bins. None of it builds anything you can claim against; all of it has to exist before a trade can start.
- Wages and subbies for work already done. The big one. The crew is paid weekly and subcontractors on their own terms, whether or not the head contractor has paid you. Weeks of labour leave your account before the first claim is even lodged, let alone certified and banked. Our payroll funding page covers that pressure.
- Insurances and compliance. Contract works cover, public liability limits that step up for a bigger contract, workers compensation on a bigger wage bill, and any project-specific requirements. Premiums fall due at the start, not at practical completion.
The arithmetic almost nobody does in advance
The working-capital gap is not a mystery. It is arithmetic, and any builder can do it for their own contract in an afternoon: everything that leaves the account between site start and the day the first claim actually clears, plus everything that keeps leaving while the second is being assessed.
It does not scale politely. A job twice the size rarely has twice the gap. It has a longer claim cycle, a bigger crew on site for longer, more subbies on staggered terms, a certifier between you and the money, retention held back from every claim, and a slower accounts process at the other end. Two or three of those compounding is how a profitable contract runs a solvent business out of cash.
| Stage | Out of the account | Into the account |
|---|---|---|
| Before site start | Insurance premiums, materials deposits, bonds, hire bookings | Nothing, unless the contract carries a mobilisation payment |
| Mobilisation | Site establishment, temporary services, fencing, traffic management | Nothing claimable yet |
| First weeks on site | Weekly wages, subbie invoices, hire, material deliveries | Work done, not yet claimed |
| First claim lodged | All of the above continues | Nothing until it is certified and paid |
| First claim paid | All of the above continues | The claim less retention, if paid on time |
Fill that in with your own program and payment terms and you have the figure you need. It is rarely the one people guess.
Size the request to the gap, not the contract
The most common mistake at enquiry stage is anchoring on the contract value. A large contract is not a large borrowing requirement — it is a large amount of work that a much smaller amount of money has to carry until the client starts paying. What needs funding is the trough: the deepest point the balance reaches before the first claim clears, plus an allowance for the second cycle, which opens before the first payment is spent.
Borrowing to the contract value means paying to hold money the job never needed. Borrowing to a round number that sounds comfortable is the same guess wearing a better shirt. Working out the trough gives you a figure with a reason attached, which is a far better conversation than a figure with a shrug. That is what working capital funding is for, and the wider cash-flow shape of the sector sits on our construction finance page. If you still work off day rates rather than claims, the tradie funding page fits closer.
Smoko Finance is a business-finance referral service, not a lender, and makes no credit decisions. Enquiries are referred to licensed Australian finance specialists who can arrange unsecured business finance of up to $200,000 for business purposes, subject to eligibility, assessment and lender approval.
Bring a schedule, not a contract
If you take one thing from this guide, take this: the most useful thing to put in front of a specialist is a simple schedule of when money goes out and when it comes in across the life of the job. Not the contract. Not the tender. A dated list.
Down one column, the outgoings week by week — wages, subbie payments, supplier accounts, hire, insurance, site costs. Down the other, the claims: when each is lodged, when it should be certified, and when payment falls due under the contract and your state's security of payment legislation. Mark retention separately; it is not coming back for a long time. Our guide on getting paid in construction goes deeper into how those terms behave.
That one page does three things at once. It tells you honestly whether the contract funds itself. It shows a specialist that the shortfall is timing rather than trading, which is the distinction the assessment turns on. And it sets the amount and the term, because you can see the week the money is needed and the week it can start being repaid. Everything else is verification; the schedule is the argument. What gets read in the statements is covered in what lenders look for in bank statements.
The honest warning
Here is the part most finance sites leave out. A job that only works if every claim is paid in full and on time is not a viable job. It is a bet on somebody else's accounts department, placed with your own solvency, and that bet loses often enough that it should never be the plan.
Test it before you sign. Assume one claim is paid properly late and run the schedule again with wages, subbies and hire still going out. If the business survives that on paper, funding the gap is a sound commercial decision. If it does not, borrowing has not fixed anything; it has added a repayment to a contract with no room for the most likely thing to happen.
When the answer is no, the fixes are commercial rather than financial. Negotiate a mobilisation payment before signing. Break the claim schedule into smaller, more frequent claims. Push back on retention. Ask the supplier for terms rather than a deposit. Or decline the job and keep the business. Turning down work that would have broken you is a good day, even though it never feels like one.
What to have ready
These conversations move fastest when the picture is complete on day one: your ABN and structure, six months of business banking or secure read-only bank data, the contract or letter of award, your schedule of outgoings and claims, and finance already committed on plant and equipment. The documents page lists the full set and eligibility spells out what gets weighed.
Timing matters here, because a mobilisation date does not move to suit paperwork. Our guide to getting a quick business loan sets out what determines the pace. The enquiry is free, takes about two minutes and is not an application for credit — a specialist calls back, usually within one business day.
Frequently asked questions
How much should I borrow to fund a bigger construction job?
Size it to the gap, not the contract. Work out the deepest point your bank balance reaches between site start and the first progress claim clearing, then add an allowance for the second claim cycle. That trough is the real requirement. Borrowing to the contract value means paying to hold money the job never needed, and any amount is subject to eligibility, assessment and lender approval.
Can I get funding before the first progress claim is paid?
That is the usual reason construction businesses enquire. Assessment is led by your recent trading revenue rather than the job you are about to start, so lenders read roughly six months of business banking to see whether the pattern of work is genuine. A clear schedule showing when claims fall due helps frame the shortfall as timing rather than trouble. Approval remains the lender’s decision.
Does a signed contract count as income for a lender?
Not as income, no. A contract is evidence of work won, not money received, and lenders assess what has actually landed in the account. The contract still matters at the conversation stage because it explains why the request exists and when repayment becomes realistic. Bank statements carry the assessment; the contract and your claim schedule carry the story around it.
What happens if the head contractor pays a claim late?
Plan for it before you sign. Run your schedule again assuming one claim lands properly late, with wages, subbies and hire still going out on time. If the business still stands up on paper, the job is viable. If it does not, that is a contract problem rather than a funding problem, and borrowing will only add a repayment on top of it.
Should I turn down a job I cannot fund?
Sometimes, and it is the right call more often than people admit. If the only version of the job that works requires every claim to be paid in full and on time, you are betting your solvency on someone else’s accounts process. Try negotiating a mobilisation payment, more frequent claims or better supplier terms first. If none of that shifts, walking away protects the business.