Quick answer
Construction businesses use property-secured loans to bridge the gap between paying subcontractors and suppliers and receiving progress payments, to cover retention money held back on completed jobs, to clear ATO arrears and to respond quickly to creditor demands. Because the loan relies on property rather than the builder's often lumpy financials, it can be arranged fast, from $20,000 to $5,000,000.
Key points
- Bridges progress claim and retention delays
- Clears tax arrears that build up in tight years
- Responds quickly to statutory demands from suppliers
- Assessed on property and exit, not uneven financials
- Interest prepaid or capitalised to protect cash flow
The construction cash cycle
Construction businesses carry more of their customers’ risk than almost any other industry. Labour and materials are paid weekly or monthly, while income arrives in progress claims that must be certified and approved before payment. Retentions are held back until defects periods end. Variations are argued over. A single delayed payment from a head contractor or developer can ripple through the whole business.
Add rising material costs, fixed-price contracts signed before prices moved and the risk of a client’s insolvency, and it is no surprise that construction has consistently recorded one of the highest insolvency rates of any industry in ASIC’s published statistics. Many of those businesses were not unprofitable. They ran out of cash at the wrong moment.
How builders use secured finance
| Need | How a secured loan helps |
|---|---|
| Progress claim delays | Pays subcontractors and suppliers until the claim is paid |
| Retention money | Releases cash now, repaid when retentions are released |
| ATO arrears | Clears GST and PAYG withholding that slipped in a tight year |
| Statutory demands | Pays a supplier within the 21-day deadline |
| Equipment and vehicles | Deposits on plant needed for a new contract |
| Yard or premises | Buying the depot instead of renting |
Why property security suits builders
Builders’ financial statements rarely tell the current story. A strong pipeline of signed work may sit alongside a loss year caused by one bad project. Banks read the statements; a secured lender looks at the property offered and how the loan will be repaid, such as a specific progress payment, a retention release or the sale of completed stock. That makes decisions faster and less dependent on last year’s numbers.
Security options for construction businesses
- The builder’s home or investment property, often as a second mortgage behind the existing loan.
- The business’s yard or premises, as a first mortgage.
- Completed but unsold stock from a spec build or small development. See residual stock loans.
- Land held for future projects. See land loans.
Talk to a specialist about your construction cash flow before a delayed claim becomes a crisis.
Protecting against creditor action
Suppliers who are not paid on time can issue a statutory demand, which gives the company 21 days to pay before it is presumed insolvent. For builders, that risk is real. A secured loan can pay a demand within the deadline while the business chases its own debtors. See statutory demands.
Licensing and the regulator
Building regulators in several states, including the Queensland Building and Construction Commission, consider a licensee’s financial position as part of licensing. Keeping debts current and the balance sheet healthy matters for the licence as well as for the business. Talk to your accountant about how any new borrowing affects your licensing requirements.
An illustrative builder
Illustrative only. A commercial builder completes a fit-out for a national retailer, but the head contractor delays the final progress claim and holds retention for twelve months. Meanwhile, subcontractors on the next job need paying. A second mortgage over the director’s home covers six weeks of subcontractor payments and supplier accounts, with interest capitalised. When the delayed claim is paid, the loan is reduced; the balance is cleared when the retention is released.
Mistakes builders make with cash
- using GST and PAYG withholding to pay subbies, creating a tax debt
- taking on a large job without funding the gap before the first claim
- ignoring a statutory demand while chasing a head contractor
- relying on unsecured daily-repayment loans that drain project margins
The exit for construction loans
Common exits are a specific progress payment or retention release, the sale of completed stock or land, a refinance once the business has a stronger year, or trading cash flow across several projects. Set the term to the realistic payment timeline, not the contract’s ideal one.
Subcontractors and trades
Smaller trade businesses that subcontract to builders face the same pressures on a smaller scale: paying wages and suppliers weekly while waiting on a builder who pays monthly. Our page for trades covers the specific issues for electricians, plumbers, carpenters and other trade contractors.
Security of payment rights
Each state has security of payment legislation that gives contractors and subcontractors a statutory process to claim progress payments and resolve disputes quickly. Using those rights can shorten the time a payment is outstanding, which in turn shortens the term of any loan bridging it. Ask your lawyer whether a claim under your state’s legislation would help.
Keep the job moving
Construction businesses live and die by cash timing. Tell us about the project, the payment you are waiting on, the property you can offer and how the loan will be repaid, and a specialist will tell you how quickly funds can be arranged. There is no credit check when you first enquire, your enquiry stays with one team, and accurate claim and payment dates help us set a realistic term. Get construction funding.
Frequently asked questions
Why do construction companies struggle to get bank finance?
Construction income is lumpy and project-based, margins can be thin, and banks see the sector as higher risk. Financial statements often understate a builder's current position.
Can a secured loan fund a progress payment gap?
Yes. A short-term loan can pay subcontractors and suppliers while the business waits for a progress claim to be approved and paid.
What about retention money?
Retentions held back on completed projects are money the business is owed later. A secured loan can provide the cash now, repaid when the retention is released.
Can a builder use a project property as security?
Sometimes. Completed stock, land or the builder's own premises and home are all common forms of security.
Prefer to start now? Enquire here
About 60 seconds. No credit check when you first enquire, and a secured lending specialist calls you back.