Commercial construction contractors are in an almost impossible situation. The economy is booming, and public and private organizations are looking to build new offices, hotels, skyscrapers and more. But to make all that happen, organizations — and the general contractors they hire — depend on thousands of subcontractors who are willing and able to do the work right.

The construction industry is still considered a high-risk lender, despite all the demand, which means that few commercial contractors are able to qualify for traditional bank loans. And unless the contractor’s credit score is at least 600, most will not qualify for a Small Business Loan (SBA) loan.

Commercial construction companies need outside funding

Without the ability to secure financing, construction companies have to self-fund all of their project expenses out of pocket. Just in the first 30, 60 or 90 days of a job, a commercial construction company needs enough money on hand to cover the project’s expenses, including pricey bond premiums, plus labor and materials costs.

For short-term projects, the company may need to complete all the work before it can bill for the payment. And if the general contractor or project owner does not pay, it could take years for the business to recover.

This reality limits how many people a company can hire, supplies and materials they can order and equipment they can use. Everything is controlled by how much cash they have on hand.

And in an industry notorious for late payments and razor-thin margins, the risk is particularly high. It can take business owners years to build up a war chest that is sufficient to take on larger and more valuable projects. That, in turn, puts a huge strain on the companies who would want to hire them.

The trouble with traditional lending for commercial construction companies

The trouble with many funding options, however, is that the commercial construction industry has its own complex set of rules, regulations and standards. Lien rights, retention and the bonding system are nearly exclusive to construction and are misunderstood by most lenders.

Even though payment terms are set at 30- or 45-days, the average amount of time before payments are issued is actually 57 to 63 days, according to SageWorks. For lenders outside of the industry, those late payments by general contractors and property owners mean frequently dealing with expensive late fees. The resulting hit on the company’s credit score further disqualifies them from future low-interest loans.

Alternative lenders specific to the commercial construction industry have stepped in to solve this problem, allowing companies to take on more risk and grow to meet the increased demand for their services.

Mobilization Funding is one of those alternative lenders. Mobilization Funding began with the interests of a commercial contractor in mind. That means no late fees, and flexible payment terms set around your work schedule, allowing you to better cover the cost of bond premiums, labor and materials up front.

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There are many factors behind landing a winning bid. For upper-level commercial construction projects — especially for those lucrative government contracts — you have to prove that your company can complete the work for a competitive price and that you have the means to carry it through start to finish. A Financial Capability Letter can solve this problem.

Funding affects everyone on the job.

If you don’t have the financial ability to make payroll, cover the bond premium, secure needed equipment or pay vendors, your entire project can be put at risk. If one subcontractor on the job cannot afford to cover the necessary costs, they may cut corners, like delaying material orders or putting less labor on the job. Even worse, if a subcontractor fails to pay its vendors or is otherwise unable to complete the job, the general contractor and owner risk a lien being placed on the property.

For many scopes of work, like Structural Steel, HVAC, Electrical, Concrete and Sitework contractors, the cost of material orders, equipment and dump fees early in the project can be incredibly expensive. So for those trades in particular, having sufficient financing in place is critical.

General contractors recognize that this financial strain by a subcontractor can delay or drag out the job, stressing the project overall. However, there are very few subcontractors who are able to have enough cash on hand to do the project without outside funding.

A Financial Capability Letter proves you’re financially prepared to do the work.

Include a Financial Capability Letter in your bid package, showing you have the capital available to do the project right.

The letter, supplied by your funding partner, will state the following:

  • The amount of funding available
  • That the funding will be set aside specifically for that project
  • The name of the project
  • The name of the general contractor

Often in the form of a loan pre-approval letter, the Financial Capability Letter will state that your company’s financial standing has been verified. The letter also acts as an additional point of reference, making the general contractor or project manager feel more confident in your ability to complete the work on that particular project. In a competitive bidding process, this can make all the difference.

Pro tip! In the pre-approval process, secure a breakdown of how much the loan will cost, then build the cost of that capital into the bid.

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7 Ways to Win More Government Contracts

How does your business calculate the right bid for a job? Do you sort out the job cost and then increase it by a third? Do you use the “10 and 10” method, adding a 10 percent overhead and 10 percent profit? Are you able to differentiate between margin and markup? When is the last time you double checked those figures?

Financial expert George Hedley estimates that at least three-quarters of installation contractors don’t know how to estimate the markup they’ll need to cover job costs plus overhead and still turn their projected profit margins. Larger companies may find that their markup needs to be higher to cover increased overhead costs or to ensure that current or future investors are seeing healthy profit margins.

Understanding the difference between margin and markup is critical for contractors and business owners. We created this helpful Margin vs. Markup guide so you know your numbers are right.

Common terms defined:

Job costs include everything you’ll need to complete the work. This includes labor, materials, leased equipment costs, projected capital costs (if borrowing money for the job), bonding premiums, permits, gas, and other materials and supplies.

Overhead is all the bills and expenses not included in the above job costs that you will need to pay in order to operate your business. While this sometimes varies, it includes things like rent for your office, office-based support staff, some types of insurance, tools, equipment, bookkeeping, accounting, legal costs, owner’s salaries, outstanding debt payments and whatever else it might take to keep the lights on if you don’t have active jobs.

Net profit is the remaining amount after job costs and overhead are subtracted from the price. With net profit you can make capital investments in the company (new office, new equipment or machinery) and take distributions from the business in addition to your salary. A healthy business should be able count a net profit of at least 8%, experts say.

What is the difference between margin and markup?

Markup is the sales price, minus the job costs. Margin is the sales price minus the job costs and minus overhead allocation.

Here’s an example:

Let’s say you’re bidding on a job that will cost your company $200,000 to complete with materials, labor, and equipment, and you plan to bid $250,000. Your total sales forecast for the year is $1 million and your annual expected overhead costs at that level is $80,000. That’s an 8 percent cost of overhead. In other words, you need to tack on more than 8 percent to the cost of the job just to break even.

Many companies don’t take such a close look. Your business may be spending too much on overhead, or in times of growth, may not set aside enough to cover the cost of rent or to pay your own salary.

Your markup would be calculated as follows:

Using the overhead, you can also calculate the margin:

At the end of the day, having too thin of a margin can leave your company vulnerable if something goes wrong on the job, like a weather delay or another trade’s issue. A good bid is never about just tacking on some standard percentage to your job costs. It’s about being precise about your business’s financial needs.

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3 Bidding Mistakes that are Killing Your Profit Margin

Commercial construction bidding can be a stressful and frustrating process. It takes time, energy, and doesn’t always pan out in your favor. But, sitting out the race also means turning your back on tremendous growth opportunities. Here are some common mistakes contractors should avoid when bidding on new projects.

Man's hands on a laptop keyboard, blueprints underneath

You aren’t qualified

That doesn’t mean you aren’t CAPABLE of the work, but it does mean you will need to put in extra effort to show a General Contractor that you understand the full scope of this project, and how your previous expertise will inform your execution strategy.

You don’t have the relationship

Construction is all about relationships. If you are trying to land your first big job, it pays to invest extra time and energy into building a relationship with the General Contractor. Let them know you are willing to work on smaller, additional projects on the site, or to collaborate on any problems that occur. Be a person they can turn to in a pinch, and eventually you will be the person they turn to for opportunities, too.

Casting too wide a net

Look for the best opportunities for your business and focus on your strengths. It’s better to focus on jobs that you are confident and comfortable in rather than trying to overexert your company’s capabilities. Over time, this will allow you to find the sweet spot with your bids.

Pro Tip: ConstructConnect has a searchable database that can help you find actively bidding commercial construction projects in your area. 

Waiting for the bid to be announced

Business owners should always be on the hunt for new job opportunities. Talk to your General Contractor or reach out to contacts in your network. Ask if they know of any future jobs that could be good leads for your company, and if they’d be willing to put in a word for you once the bid is submitted. This will help narrow and improve your bid and project pipeline.

Wasting time on “iffy” projects

Drawing up a bid proposal can be grueling process, so be sure to regularly evaluate the quality of the potential job. If it’s not a good fit, it is often best to walk away and look for something else.

Skipping pre-bid meeting and site visits

Creating a good bid proposal requires precise estimations and detailed planning, so take advantage of any opportunity to research and learn about the job. This can also help you build rapport with the GC or project owner, and is an opportunity to ask questions about allowed material substitutions, bonding or wage rate requirements, and double-check that you’re interpreting the plans correctly.

When it comes to construction bidding, don’t go it alone

Always have additional eyes reviewing your bid. Not only should you ask your business partners or an outside agency to look out for typos, but also to check your math and verify that everything adds up properly. A reviewer can help make sure you didn’t miss any important components that could mean the difference between winning and losing the bid, but also can protect you from submitting a bid that is too low for the job, which can result in lost money and unnecessary debt.

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Bidding Tips for Construction Subcontractors

Construction projects are capital-intensive and, unlike many other industries, the company undertaking the work — that is, the subcontractor — puts in a considerable amount of work before billing and months before receiving payment for its services. Many commercial contractors have a hard time securing traditional funding. Alternatives are available, but how do you decide which is the best for your business? When seeking a construction loan, you should consider the following factors in deciding which loan to pursue:

What is the capital for?

Commercial construction loans are often used to cover any number of a business’s needs, such as the cost of leasing equipment, payroll, materials or bond premiums. The more specific, the better.

How much money is needed?

Prior to seeking a loan, examining your current financial position will give your business a better long-term picture of your true lending needs. For larger loans, the input of a Certified Public Accountant can help to ensure that you are seeking the appropriate sized loan for your company.

Once you have pinned down the purpose and amount of capital you are looking for, you can move on to identifying the appropriate loan.

Here are some additional questions to consider while making your decision:

Is your repayment schedule in-line with your pay apps?

Be sure to have a full written breakdown and understanding of when your payments are due and what the penalties are for late payments in case of a change order, weather delay or other holdups. Hidden fees and penalties can add up quickly and result in a more expensive loan than you had anticipated. Some funding options, like Merchant Cash Advances, auto-debit hundreds of dollars from the borrower’s account every single day. If you will only be on a project for another three months and you have a six-month payback period on an MCA, then you need to know you have more work starting quickly and enough work to be able to actually afford the same daily payment in months four through six of the repayment period.

Surprised? That’s just the beginning.
Check out our Guide to Merchant Cash Advance Loans

Can you build the cost of financing into the bid amount or project costing?

The key here is anticipating which jobs you will need additional capital for rather than waiting until your coffers have started to run dry. Building the cost of financing into your bid amounts will allow you to keep your profit margin at your projected amount.

What is the total cost of the loan? (Including closing costs, interest and additional fees)

No loan is going to be free, but you should have a solid understanding of the cost of that capital before signing on the dotted line.

Start your application today. Just answer these 3 questions!

The government construction contract realm is worth about $270-billion dollars, with a near-guarantee of payment for your work. From public schools to county courthouses, to airports and interstates, government construction contracts can be incredibly lucrative for commercial contractors.

But breaking into the public sector can be tough. Here are some tips to help strengthen your bid.

Start with the paperwork.

There is a lot of red-tape involved in bidding on a public sector project. This first step can trip up a lot of contractors. Get in front of the required paperwork by creating a list and tackling one item at a time. The government has set out steps for the documents and certifications needed to apply for public projects. They include:

Identify your NAICS Code, which will put your company into a particular industry classification.

Determine the size of your company using the SBA website’s size standard tool. A quarter of all government contracts must be awarded to small businesses, so if you qualify as one, that can give you an edge.

Register with Dun & Bradstreet to obtain a DUNS number, which allows you to submit bids for public contracts in your area.

Sign up with the Central Contractor Registration (SAM) database, in order to register and track those government jobs.

Join FedBizOpps.com, which delivers new relevant RFPs and contracts available for bid.

Look for subcontracting opportunities on government projects using the SBA’s SubNet database.

Connect with a Procurement Technical Assistance Center (APTAC) where you can sign up for classes, work with a counselor and attend networking events.

If your business is women – or minority-owned, be sure to register with the National Association of Women Business Owners or the National Minority Supplier Development Council.

Show your government experience online.

Make sure you are well-represented online and that your website is current, with language specifically geared to government agencies. This is key since, beyond the information you submit, decision-makers will frequently vet a company by looking at their online presence.

If your company has worked on other public projects, be sure those are visible on your site and link to a case study with details that back up your bid if possible. If you don’t have any public projects to showcase, look for projects similar to the one you are bidding on.

Place your government and public projects in your online portfolio. Include great photos and descriptions of the work performed. Make sure your gallery is easy to find and navigate. Consider grouping or tagging your government projects by categories like schools, municipalities, and emergency response stations.

Keep an eye on your competition.

Keep your finger on the competition’s pulse by tracking contractors, contracts and future projects online. A little bit of research can give you a better idea of what your competitors are doing and help you gain an edge in positioning your company. The U.S. General Services Administration has recently merged several sites into one easy-to-use interface: https://beta.sam.gov/. This site houses information on governmental design and construction, policies and compliance, environmental laws and regulations, and more.

Focus on your reputation and past performance.

Proving that you are an established business and financially stable is essential to securing a bid. Make sure you are cashflow positive and that your financials are in order. An outside consultant or a CPA can be invaluable if you are unsure of your standing. Ultimately, the company that offers the most competitive bid with a strong track record of finishing high-quality jobs on time will secure the bid.

Click here to learn how a Financial Capability Letter can strengthen your government contracting bid.

Triple-check your bid amounts.

It can be tempting to lower your bid amount in order to beat out your competition and win the job. Remember that public entities will scrutinize your bid, and most will weed-out those that are unrealistically low.

Even if you were to get the job at unrealistically low price by dropping your profit margin you are adding unnecessary risk to the job, especially when a weather delay or unforeseen setback occurs, preventing you from being able to do the job as originally planned. It’s better to wait until the right bid goes through at a price that is appropriate to the job.

Bidding is all about the numbers. Make sure yours are accurate.
Get a free Margin versus Markup guide here.

Be sure to have adequate funding in place.

One of the most challenging parts of securing a bid is proving that you have the money to do it right. Lacking the cash and mobilization capital to cover expenses like permitting, surety bond premiums, material, and labor can be a big hit to your company’s bottom line before the project has even started.
Over the last several years, many commercial contractors have scraped by with whatever cash they have until they submit their first pay app. Then, they seek out other ways to finance the project, some of which often result in an impossible cycle of debt.

Click here to read The Guide to Merchant Cash Advance Loans.

You can avoid that debt whirlpool by securing funding upfront to cover early expenses. Securing funding before the project starts strategy allows contractors to build the cost of the capital into their bid rather than have it come out of their profit margin later on. Companies that secure a loan in advance can bolster their bid by providing the property owner with a pre-approval letter.

Be realistic and meet expectations.

Being awarded and then failing to perform on the first project because you took on a one that was too large or too challenging will make it unlikely for you to secure another public bid in the future. The construction industry relies on word-of-mouth and reputation, even in the public sector. Don’t burn your first opportunity by shooting for the moon and falling flat.

Plan for your first public project to be well within your business’s comfort level and capability. Be accurate and upfront with your bid, get the work done, and meet expectations at every step. The reward will be the larger project you win the next time, and the next.

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Why would a subcontractor need a construction loan? Managing cash flow and staying above water can be difficult for any business, but the problem is especially prominent in the construction industry. Due to a complex and inefficient payment system, contractors have a nearly impossible task of covering the cost of a job, especially before the pre-construction phase begins and for the first three months after you mobilize and begin working on a particular site.

That system forces you to have upwards of 20% or more of the total project cost up front to cover things like bond and insurance premiums, materials, payroll, equipment and supplies. You won’t be paid for 60 or 90 days after a project begins—and that’s if everything goes just right.

Construction Loan Alternatives

For a smaller job, you may be able to scrape together funding from a bank on a personal line of credit or secure a loan, but that loan is based on your personal assets. It’s risky and there’s only so far that a business owner can go with that strategy.

Banks continue to be reluctant to offer small business loans to contractors after the economic collapse of the late 2000s. Yet, according to the Federal Reserve Bank of New York’s annual small business credit survey, 61% of employer small business’ faced financial challenges in 2016. The number one problem was securing the funds they needed to expand.

Another 17% of respondents said they couldn’t get the money to pay for inventory or buy what they needed to fulfill contracts.

Without taking on a partner and giving up some of the ownership of their company, there are few good options for smaller and mid-sized subcontractors who are interested in bidding on larger projects and elevating themselves to the next tier.


It’s common for contractors to limp along with the cash they have on hand and then bill the general contractor for the work completed in the first 30- or 60-day time period of the project.
Then, with cash reserves largely dried up, you start to feel the pressure. You may start to cut employee hours or hold off on ordering supplies. To stay afloat, you may turn to a factoring company.

Factoring companies purchase submitted and approved invoices and pay you, the subcontractor ,a percentage of the funds owed (typically about 80%). The general contractor then pays the factoring company the full invoice amount, which recoups their initial payment to the contractor as well as a fee for their service. Any remaining profit is then sent to you.

Benefits and Drawbacks of Factoring

Used correctly, factoring can be a useful tool for a subcontractor. But there are disadvantages, too. It’s a headache for general contractors, who find themselves inundated with paperwork. It’s stressful for the subcontractor too, as it may be viewed by the general contractor as a sign that you’re having financial troubles.

Merchant cash advance loans

What if you find yourself in such financial distress that you need payroll or equipment capital before you send the first invoice to your general contractor? This situation often results in a daily debit loan, which is when a company grants you a lump sum dependent on cash deposits in your company’s bank account and then the lender automatically deducts money from the company’s checking account on a daily or weekly basis until the loan is repaid in full.

The Slippery Slope of Cash Advance Loans

While daily debit loans and other cash advance loans have some benefits—they solve the immediate funds issue, have automatic repayment and can help boost business credit scores—they’re also difficult to sustain.

Cash advance loans are expensive and cannot be paid off early. And once the repayment schedule starts, the lender automatically deducts hundreds or even thousands of dollars from your account, making it more difficult to determine how much cash you really have on hand. You may be left feeling like you’ve solved one problem only to find you’ve caused a new one.

Learn more about the dangers of MCAs in the construction industry. 

The Guide to Merchant Cash Advance…

The problem with lump sum payments

Many contractors act under the mindset that if they could just get that extra $100,000 they need, everything else would work out. But that is often not the case.

A Cycle of Debt

Think about it from a personal finance perspective. If you as a business owner see that one of your employees immediately directs their paycheck to a payday lender, you can guess that employee is in a challenging financial situation. You hope it’s short term, but if you see the same behavior week after week, month after month, you know your employee is losing hundreds of dollars to fees and interest and is stuck in a spiral they can’t easily escape from.

By continuously turning to a factoring or daily debit company, your business is in the same boat as that employee. And like him, the situation is stunting your financial growth by spending money on interest rather than setting it aside for your next big project.

Backward Allocations

Properly allocating the lump sum once it comes in is often the worst part for subcontractors. If the money is spent working backward and paying for work that was already done, you’ll find yourself short again and likely need another loan to make it through to the next pay out. And the next. And the next. Each loan means more profit flying out of your pocket and into the lender’s.

And if the unexpected happens, like a weather delay or a change order, there is even potential for you to lose money on a particular project. Those cases put tremendous stress on the entire business model and put your future projects at risk.

Learn more about commercial construction financing.

What is Construction Financing?

Cash in on opportunity

In a perfect world, a subcontractor would grow slowly, setting aside money for each new job you pick up in order to fuel any upcoming projects. You’d have a great track record with estimating project costs low enough to keep you competitive, but have the bid high enough that you can turn a healthy profit and manage any setbacks that will arise.

The good news: Now is a great time for contractor growth.

The U.S. economy is booming and the construction industry is seeing explosive growth. Dozens of airports around the country are under major construction, or are ramping up to start their renovations. Developers and Fortune 500 companies need contractors now more than ever to build their massive technology centers, enormous housing developments and sprawling office parks. Opportunity is everywhere.

Now is the perfect time to grow your business, whether that growth is $100,000 to $500,000 or $3 million to $10 million. The trick is in doing your research to make sure you are financially prepared to make that leap.

A Cash Flow Partner

One of the best ways to move your business forward is to partner with a company that is committed to your mission and is knowledgeable about your industry. You need a company that is able to offer you the funds you need when you need them and sets a repayment plan in line with the cash flow cycles of your business. Having such a partnership allows you to focus on doing the high-quality work you were hired to do and minimize the stress of cash flow management along the way.

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Construction Contract Financing for…