Funding a big contract with property security

Winning a contract that is bigger than anything you’ve delivered before is a milestone. It is also a cash flow test. Materials need ordering, crews need paying weekly, equipment needs hiring or buying, and the client’s first payment may be a month or more away. Many good businesses have stumbled not because they couldn’t do the work, but because they couldn’t fund it while they did.

Property equity is a practical answer. A short-term secured loan carries the job through its expensive early stages and is repaid as the contract pays out.

Why does a big contract strain cash flow?

Because the money moves in the wrong order. You pay suppliers on their terms and staff every week, but you are paid on the client’s terms, usually in arrears after a claim is assessed.

The gap is widest at the start:

• Mobilisation: site setup, equipment, insurances, initial materials.
• Labour: extra staff or subcontractors from day one.
• Materials: large orders that suppliers may want paid on delivery or within 30 days.
• Retentions and variations: money you’ve earned but may not see until much later.

Even when the law sets payment times, there is a lag. In NSW construction, for example, the NSW Government sets maximum payment times unless the contract specifies shorter ones: 15 business days from a principal to a head contractor, 20 business days from a head contractor to a subcontractor on non-residential work, and 10 business days on residential work. Progress claims can generally be made monthly. Federal government work has its own policy: under the Department of Finance’s Supplier Pay On-Time or Pay Interest policy, non-corporate Commonwealth entities generally pay within 20 calendar days. Those are maximums from the date of a claim or invoice, after the work is already done and paid for.

How much should I borrow against my property for a contract?

Not the contract value. Borrow enough to cover the deepest point of the cash gap, plus a buffer.

Map the job month by month. Illustrative: here is a simple, round-number view of a six-month contract.

Month	Costs paid out	Client payments in	Cumulative cash gap
1	$400k	$0	-$400k
2	$350k	$250k	-$500k
3	$300k	$350k	-$450k
4	$250k	$350k	-$350k
5	$200k	$350k	-$200k
6	$100k	$400k	+$100k

In that example the gap peaks at $500k in month two. A loan of around $550k to $600k covers the peak and leaves room for a late payment or a variation dispute. As payments flow, the balance can be paid down or cleared in full once the job completes.

Which structure suits contract funding?

• Debt-free property: a private first mortgage, simplest and with the sharpest pricing.
• Property with a bank loan: a second mortgage behind the bank, leaving the existing loan alone.
• Urgent, smaller need: a caveat loan; smaller property-secured amounts of $20k–$250k are possible the same day. See our fast second mortgage page.

Interest can be prepaid or capitalised, so there may be no monthly repayments while the job is running and cash is tight. That is often the single most useful feature for contract funding. Read about the trade-offs on prepaid or capitalised interest.

If you are a builder looking for ongoing working capital rather than funding for one job, our page on builder funding against property and the guide to builder cash flow and property equity go deeper.

What does contract funding look like in practice?

Illustrative example: a Penrith joinery business wins a $2.4m fitout package from a head contractor on a commercial project, roughly three times its usual job size. Its own forecast shows a cash gap peaking at about $520k in the second month. The two directors own the factory unit, worth around $1.5m with $450k owing to the bank. A $600k second mortgage behind the bank is arranged with interest capitalised for nine months. The loan funds timber, hardware, two extra CNC operators and site installers. Monthly progress claims arrive within the contract’s payment terms, and the loan is repaid in full from the final payments and part of the retention release in month eight.

The business delivered its biggest job yet without stretching suppliers or staff.

If you’ve just won work like this, tell a specialist about the contract and the property you’d offer.

What if the client pays late?

Late payment is the main risk in contract funding, so plan for it before it happens.

• Know your contract’s payment terms and diarise every claim date and due date.
• Use the statutory process where it applies. In NSW construction, the NSW Government explains that if you don’t receive a payment schedule in time, or aren’t paid by the due date, steps open to you include applying for adjudication, where an adjudicator decides the dispute.
• Keep the lender informed. A short delay with notice is a conversation; a surprise at the end of the term is a problem.
• Choose a term with slack. If the job should finish in six months, a longer loan term gives room for a slow final payment.

What does a lender want to see for contract funding?

The property carries the security, so you don’t need a bank-style credit pack. But you do need to show the contract is real and the numbers hang together:

• the signed contract or letter of award, with payment terms;
• a simple cash flow forecast for the job;
• ID and entity details for the borrower and guarantors;
• property details and statements for any loans on it;
• a fallback exit, such as a bank refinance or a property sale, in case payments run late.

What exit works for a contract loan?

Every loan needs a clear exit. For contract funding the primary exit is usually the contract’s own payments, with a backup:

1. Contract receipts clearing the loan as the job progresses or at completion.
2. Bank refinance, once the completed job strengthens your financials.
3. Property sale, if payments run well behind schedule.

A lender is reassured by a backup that exists on paper, not just in conversation.

Key terms

• Mobilisation: the costs of starting a job before any claim can be made.
• Progress claim: a request for payment for work completed in a period.
• Retention: an amount held back by the client until defects are resolved.
• Peak cash gap: the largest shortfall between money out and money in across the job.

Won the contract? See if you qualify

An enquiry takes about 60 seconds and doesn’t involve a credit check at that stage. A real specialist reviews the contract, the property and your forecast, and your details aren’t sent to a crowd of lenders. Our lending partner fundU lends directly.

Give us the contract value, the payment terms, the property you’d offer and what is owing on it. Precise answers about the property and its debts mean you get the right answer first time. Check what your property could fund.