Builder cash flow and property equity: when borrowing helps and when it hurts

Ask a builder with a full order book how business is going and you’ll often hear two answers in the same breath: never been busier, never been tighter. Both are true. Building is one of the few trades where growth can starve a business of cash, because every new job means paying out before getting paid.

Many builders also own property — a home, a yard, a shed or an investment unit — and that equity can smooth the gaps. Used well, it keeps crews working and suppliers happy. Used badly, it props up jobs that lose money and puts the property on the line.

This guide is about telling the two apart. For the mechanics of the loan itself, see our page on builder funding against property. Here we look at the cash flow behind the decision.

Why do profitable builders run short of cash?

Because the money goes out on a different clock from the one it comes back on.

Money out	Usual timing	Money in	Usual timing
Wages and super	Weekly or fortnightly	Progress payments	After each stage is claimed and paid
Subcontractors	On their invoice terms	Final payment	After completion and handover
Suppliers and plant hire	Monthly account terms	Retentions	Held, sometimes long after the job ends
GST on sales and PAYG withholding	Each activity statement	GST credits on costs	Through the same activity statements
Insurance, licences, vehicles	Annual or monthly	Variations	When agreed and paid

Every stage of every job opens a gap between the left column and the right. Run more jobs at once and the gaps stack. Have one client pay late and the whole stack wobbles.

How do you measure your cash gap before borrowing?

Build a simple 13-week cash forecast. It takes an afternoon and changes how you think about money.

1. List cash in, week by week: each progress claim, when you expect it paid (not when you’ll invoice), final payments and any retentions due.
2. List cash out, week by week: wages, subcontractors, suppliers, tax instalments, loan repayments and overheads.
3. Run the balance forward from today’s bank balance.
4. Find the lowest point. That’s the size of your gap, and the week it hits.
5. Find when it recovers. That’s the natural end of any borrowing.

If the balance dips and then climbs back as claims are paid, you have a timing gap — the kind property equity is good at fixing. If it keeps falling with no recovery in sight, you have a profitability problem, and no loan will solve it.

Which payment rules help you collect faster?

Before you borrow, make sure you’re using the rights you already have. In New South Wales, security of payment law gives builders and subcontractors firm deadlines:

• Payment schedules. The NSW Government says a payment schedule must reach the claimant within 10 business days after the payment claim was received. If the respondent doesn’t provide one, it becomes liable for the full amount claimed.
• Due dates. Where the contract doesn’t clearly say when a progress payment is due, payment is due 10 business days after the claim is made.
• Claim frequency. For contracts from 21 October 2019, monthly payment claims are allowed unless the contract allows more frequent claims, and claims must state that they are made under the Act.
• Residential work. Since 1 March 2021, the laws also cover owner-occupier construction contracts, so builders can make payment claims against homeowners.
• Unpaid claims. A claimant can apply for adjudication, and can suspend work after giving two business days’ warning.
• Retentions. On projects valued over $20 million, head contractors must hold retention money in a trust account.

Other states have their own security of payment laws, with different timeframes. Ask your solicitor or industry association how they apply to your contracts. Collecting a week earlier is cheaper than any loan.

When is property equity the right fix?

Borrowing against property suits a gap that is temporary, measurable and has a dated end. Good examples:

• a large progress claim held up by certification while wages and subcontractors still need paying
• a new contract that needs materials and labour up front before the first claim — see funding a big contract with property security
• an ATO debt that’s blocking a bank facility or growing every day
• a bulk materials purchase that locks in supply ahead of a busy period

Loans run from $20k to $5m, secured by a first mortgage, second mortgage or caveat over property you, your company or your trust already own. They are secured on that existing property, never on a client’s job and never as a construction loan. Interest can be prepaid or capitalised, so there may be no monthly repayments while the gap is open. If your forecast shows a gap like this, find out what your property could unlock.

When does borrowing against property make things worse?

• Jobs priced below cost. If your margins are negative, borrowing just funds the losses for longer.
• No identifiable repayment source. “Things will pick up” isn’t an exit.
• Using one job’s money to finish another. Borrowing to keep that cycle going hides the problem until it’s bigger.
• Borrowing the maximum instead of the gap. Extra money costs money, and the property carries the risk.

A specialist will ask about these things, because the exit — the money that repays the loan — is what a private lender relies on most.

How does ATO debt change the sums?

Tax is the most common reason builders fall behind, and carrying it has become more expensive. According to the ATO, debts on a payment plan keep attracting the general interest charge, compounding daily, and income tax and BAS debts each need their own plan. It also confirms that neither the general interest charge nor the shortfall interest charge can be deducted once it accrues from 1 July 2025, however old the underlying debt.

That doesn’t make a secured loan automatically better than a payment plan — it depends on the amount, the timeline and your other commitments. But it does mean the comparison should be made on total cost to the day the debt is cleared. Our guide comparing an ATO payment plan with a secured loan works through it, and our page on second mortgages with ATO debt explains how lenders view tax debt.

Illustrative example: sizing the loan to the gap

Illustrative: A Newcastle builder runs a 13-week forecast. The business starts with $35k in the bank. Cash in is lumpy: two progress claims of $180k and $210k are expected in weeks 5 and 9, and a final payment of $260k in week 12. Cash out is steady at around $45k a week, plus an ATO activity statement debt of $95k that needs clearing now. The forecast shows the bank balance bottoming out at minus $240k in week 8, then recovering strongly from week 12. The builder owns a yard with a small bank loan. Rather than borrow the most the yard could support, the builder takes a private second mortgage of $300k — the gap plus a buffer — with interest capitalised and a term well beyond week 12, so a slow client payment doesn’t create a new crisis. The loan is repaid from the final payment and the next claims, and the ATO debt stops accruing interest the day it’s paid.

How do you choose the term and structure?

Once the forecast shows the size and length of the gap, the structure follows from it.

• Term. Set it from the week your forecast recovers, then add a buffer for a slow-paying client or a delayed certification. Private first mortgages run for 1 to 24 months; second mortgages and caveat loans are typically shorter.
• Ranking. A debt-free yard or home suits a first mortgage. Property with a bank loan you want to keep suits a second mortgage behind it. A caveat loan is the quickest to put in place for a short, urgent gap, and can later be converted to a registered second mortgage if the timeline stretches.
• Interest. Capitalising it keeps weekly cash for wages and materials; prepaying it fixes the cost up front. Our explainer on prepaid or capitalised interest compares the two.
• Costs. Pricing is set on each deal’s security, LVR, term and exit, and a small assessment fee is shown on the Letter of Offer before you commit.

Key terms at a glance

• Cash gap: the lowest point in your forecast bank balance before money comes back in.
• Payment claim: a builder’s or subcontractor’s claim for a progress payment under the contract and the Act.
• Payment schedule: the respondent’s written reply stating what it will pay and why.
• Retention: money held back from progress payments as security for defects.
• General interest charge (GIC): the ATO’s interest on overdue tax, compounding daily.

Find out what your property can do for your cash flow

If your forecast shows a temporary gap with a clear end, property equity can carry you through it without slowing your jobs. Bring the forecast — it makes the conversation faster and the answer firmer.

There’s no credit check to enquire. Your details go to one direct lender, our lending partner fundU, not to a string of finance companies, and a specialist who understands building reads them. Be exact about the property, who owns it, what’s owing on it and when the money that repays the loan will arrive. Accurate details get you a reliable answer on the first call. Start your builder enquiry.