Experienced contractors manage working capital through a combination of: requiring larger upfront deposits from clients (30–40% before work starts), using supplier payment terms (Net-30 or Net-60 from material suppliers), maintaining a dedicated working capital reserve, and using short-term financing to bridge gaps on larger jobs.
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Working capital, gap months, draw schedules, and the strategies used by funded contractors.
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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:
The most common contractor mistake: taking the maximum advance offered rather than the amount the project actually needs. Here is the formula:
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 |
Have your documents ready including any LOE for gap months. Decision in 24–72 hours.
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What working capital strategies do experienced contractors use?
Experienced contractors manage working capital through a combination of: requiring larger upfront deposits from clients (30–40% before work starts), using supplier payment terms (Net-30 or Net-60 from material suppliers), maintaining a dedicated working capital reserve, and using short-term financing to bridge gaps on larger jobs. MCA is typically used as a bridge for specific cash flow gaps, not as a permanent financing solution.
How do draw schedules create cash flow problems for contractors?
Draw schedules tie payment to project completion milestones, but contractor costs run continuously. A contractor might spend $80,000 in labor and materials in month 1 but not receive a draw payment until an inspection passes in week 6. That 6-week gap — where cash has already gone out but hasn't come back yet — is the core working capital problem. Short-term financing bridges that gap.
Can a contractor use MCA to float payroll?
Yes — payroll is one of the most common contractor MCA use cases. Missing payroll creates legal liability and destroys team morale. An MCA can be in your account in 24–48 hours, which is fast enough to cover payroll that is due tomorrow. This makes it far more practical than a bank line of credit for same-week payroll gaps.
