Contractor Capital Guide

Contractors have a fundamentally backward cash flow model: expenses precede revenue by weeks or months. You mobilize materials and labor in Week 1. Your first payment arrives in Week 3–8, and that payment may be only 20–30% of the total contract value.

The paradox: the more jobs you win, the more working capital you need before any of them pay. Three simultaneous project starts can require $75,000–$150,000 in upfront capital before a single dollar arrives.

Contract Type	Payment Structure	Capital Gap Window
Residential remodel	Deposit + milestones	Week 1–3
New construction	Monthly draws (lender)	30+ days before first draw
Commercial TI	Monthly or milestones	30–60 days before first draw
Government/municipal	Net-30 to Net-60	Entire project before any payment
Subcontract	Pay-when-paid	GC timeline + 2–4 weeks

A single low-deposit month (under $5,000 while other months show $60,000+) is the most common reason contractor applications are declined or reduced significantly.

The solution is a Letter of Explanation (LOE) attached to your application. Here is a template:

[Date]

RE: Bank Statement Explanation — [Company Name]

To Whom It May Concern,

I am writing to explain the low deposit activity during [Month/Year] in the business checking account for [Company Name].

[Company Name] is a [type] contractor operating in [State] with [X] years in business. Our revenue model is project-based: we receive payment at contract milestones and draw approvals rather than on a regular monthly schedule.

The low deposit activity during [Month] reflects a project transition period between [completed project] closing out and [new project] beginning mobilization. This pattern is normal for our business model and occurs periodically when project timing creates a gap between one contract's final payment and the next contract's first draw.

Currently, we have [N] active project contracts totaling [value] with expected draw payments of [amount] over the next [timeframe]. Documentation of active contracts is available upon request.

Sincerely,
[Owner Name]
[Company Name]

Always attach a 1-page project pipeline summary alongside the LOE: project name, contract value, start date, and expected payment date for each active job.

The most common contractor mistake: taking the maximum advance offered rather than the amount the project actually needs. Here is the formula:

Step 1: List every project mobilizing in the next 60 days
Step 2: For each project, calculate: materials cost + labor through first draw + equipment rental
Step 3: Sum all projects' upfront capital needs
Step 4: Add 15% buffer for unexpected costs
Step 5: That total is your advance amount — not the maximum you qualify for

If the lender offers $150,000 and your actual need is $75,000, take $75,000. The daily payment on $75K is half the daily payment on $150K. Your off-cycle months will be significantly less stressful.

Most contractors run all money through one account. The 3-account system eliminates constant confusion:

Account	Purpose	Target Balance
Operating Account	All deposits in, all project costs out	2 weeks of overhead
Payroll Account	Weekly transfer from operating	Exactly next payroll
Working Capital Reserve	Funded when operating exceeds target	$15,000–$50,000

3 most recent full bank statements (all pages)
Valid contractor license (required — no exceptions)
Active project contracts or signed LOIs
Gap month LOE (if any statement shows low deposits)
1-page project pipeline summary
Government-issued ID + voided check

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Have your documents ready including any LOE for gap months. Decision in 24–72 hours.

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The Draw Schedule Cash Flow Paradox

The Gap Month Problem & LOE Solution

Right-Sizing Your Advance

Cash Flow Management System

Application Checklist Summary

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