Have you ever planned a trip to the beach with your family and friends days or weeks in advance, only to get rained out? Or have you ever set aside the next weekend to harvest the tomatoes in your garden only to discover they still aren’t ripe?
Most people have experienced the frustration of carefully making plans only to have circumstances outside their control change them. For contractors, however, dealing with shifting schedules and unexpected delays is often part of the job.
Construction projects rarely follow the schedule laid out in the original contract. Transportation issues delay your shipment of materials. The city inspector isn’t available for a few weeks. One subcontractor finishes ahead of time, but you can’t get a hold of the client to sign off on the next phase. No matter how hard you try, a construction project can unpredictably stretch, compress, and rearrange itself a million times before completion.
But many contractors still plan their financing based on the calendar. They structure monthly repayment schedules and set dates based on a rigid cash flow forecast and project schedule. When the schedule shifts, they face more serious issues than green tomatoes. They have to handle working capital gaps and rebuild their entire financial model.
Luckily, you have funding options that can adapt to the realities of your industry. Financing construction and contractor projects around milestones keeps your work and capital more closely aligned, even when your schedule shifts.
Why Modern Construction Needs New Funding Options
Once upon a time, projects ran closer to their projected schedules. Contractors faced less supply chain variability because they used local products. A single inspector could sign off on your work, and you could move to the next phase. With more certainty, it was possible to use calendar-based financing without much trouble.
But those clean schedules are the exception rather than the rule today. Global supply chains, increased regulations, niche components, technology integration, greater utility coordination, and specialized labor needs complicate modern construction projects.
Using calendar-based funding in this climate is a risky business. A schedule change might delay your project and payment, but overhead expenses and loan payments continue as normal. You have to carry the costs until you reach the specific milestones, and your clients pay your invoice.
When a shortage hits mid-project, you face high stakes. Labor is the most immediate pressure. You have to pay your crew or risk disrupting your project more by replacing them. Material orders for the next phase can’t wait either, or they’ll negatively impact your work. And if you fall behind on cash flow during one job, you carry that deficit into the next ones and risk your reputation as a contractor.
With the significant impact mid-project stalls can have on your business and the near certainty of schedule changes during your project, you need funding options that go beyond calendar-based financing.
Funding Based on Calendars, Events, and Revenue
Most financial plans revolve around the calendar. You pay your construction crew every other Friday. You draw on your Small Business Administration (SBA) loan on the 5th of each month and make the payments on the 25th. Your government grant releases funds every quarter. Heavy equipment financing also typically follows this structure, with fixed monthly payments spread over a set term regardless of project timing.
These schedules make your financial commitments predictable, but they don’t match construction project cycles. Your clients don’t always send you a payment every month. More often, you receive money based on progress and completion rather than elapsed time.
Event-based financing works the same way as your project. Construction draw loans allow you to access capital as you reach new project phases. You can advance your payments with invoice financing and repay the loan when your clients pay. Your work triggers the capital, not the date.
Revenue-based financing offers a middle ground between rigid payment schedules and project-based funding. Rather than requiring the same amount every month, repayments fluctuate with your sales or receipts. That structure can provide more flexibility when project timelines and incoming cash do not line up neatly with the calendar.
Milestone Financing Options for Each Project Phase
Each construction phase carries its own financial footprint, and those demands shift as the work progresses. You can map the cost profile for each phase before the project starts to ensure more precise borrowing and repayments that align with your revenue.
Matching the cost profile by phase with milestone-aligned financing helps you avoid the cycles of overborrowing some months and scrambling in others. Here are financing options based on the demands of each project phase.
Pre-Construction and Mobilization
You invest a lot of capital into your project at this first stage. Permits, site preparation, initial material orders, equipment staging, and crew coordination cost a significant amount of money. And you can’t expect any progress payments before you’ve started the work, so you carry the whole cost.
Development loans provide financing during the pre-construction phase, before lots are sold or the project is completed. You can draw on capital as you begin your project. When the project is completed, either the owner repays the loan by purchasing the property, or you sell the property to repay the loan.
Business term loans can also cover these costs by providing a lump sum of capital to invest in your mobilization efforts. Some lenders offer products specifically for contractors, with flexible repayment terms that align with your milestones or revenue. But even if the repayment is calendar-based, a loan term that spans the entire project timeline can make each payment reasonable.
Structural Phases
The foundation and framing phases tend to be the most material-intensive phases of a project. You have to pay for your large orders when they arrive, and your subcontractors work full schedules. Any disruption at this stage has outsized consequences for your timeline.
A construction draw loan allows you to access capital at each milestone, which allows you to withdraw the exact amount of cash you need to manage each phase once you start work. You typically repay this type of loan once the project is completed, as with a development loan.
Vendor financing can also be useful when you need to pay for materials. If your supplier extends trade credit, you can pay them in installments over the next few months rather than paying in full upon delivery. This calendar-based repayment schedule can work if you can count on progress payments in the same timeframe.
Interior and Mechanical Phases
During this stage of the project, you rely on plumbing, electrical, HVAC, and other subcontractors to make progress. And each of these specialists typically operates on their own payment schedules. Managing expenses during the interior and mechanical phases requires cash that doesn’t rely on your client releasing funds.
You can unlock the capital when you need it through invoice loans. Lenders advance you cash based on the value of your invoice. You can then use the funds to pay your subcontractors on their schedule and repay the loan when your client pays.
Change Orders
Change orders arrive throughout the project. Your client expands the scope mid-project, which requires you to secure additional materials and labor within days of the request.
Many of the milestone-based financing products can absorb these costs. Invoice financing or factoring gives you capital based on how the change order adds value to the project. You can request an increase on your construction draw loan.
Maintaining a working capital line of credit can also help address unpredictable costs, such as change orders. You secure access to funds up to a certain limit that you can draw on at any time. Once you do, you only pay interest on what you use. The repayments are typically revenue- or calendar-based, but can help bridge the gap caused by a change order.
Project Completion
Completing the project doesn’t erase your financial obligations. You still need to meet your overhead expenses even if you are gearing up for your next project. If clients take several months to finalize your payments, you may face cash flow issues.
Because you typically have lower expenses and have incoming payments, revenue-based financing and short-term loans work really well during this phase. You can probably even handle small calendar-based payments until the client pays in full. Look for financing options with early payoff incentives so you can save yourself interest by paying off your loan the moment you have the funds.
Financing that Supports Your Progress
Progress payments are the revenue engine of a construction contract, but they can also be a source of cash flow timing issues when you rely on calendar-based funding. It’s too easy for your schedule predictions to take unpredictable turns.
Instead of risking your project and more, milestone-based financing lets you access funds and repay the loans as you earn money. You can plan your capital around the phases of your project and adjust more easily to a shifting schedule.
Don’t set yourself up for financial strain when your construction project doesn’t go exactly as planned. Use financing that supports your progress and your business.
