Construction Business Financing in Canada: Options for Contractors and Trades

What many don’t realize is that a considerable portion of Canadian construction businesses utilize construction business financing in Canada. In fact, more than 25% of loans in certain programs extend to residential construction. During the pandemic, nearly 900,000 SMEs, including many in construction, got government-backed CEBA loans.

We say all this to state that construction businesses rely heavily on debt financing primarily for equipment and building-related activities. Part of the reason for this is that construction businesses face different kinds of financial pressures than most industries. For example, work is tied to projects, payments follow milestones, and expenses show up early.

In many situations, this leads to cash-flow problems, even for well-established Canadian construction businesses. Fortunately, there are contractor business loans in Canada that can help bridge the timing gap, especially when you must cover materials, labour, and subcontractor costs before your next payment arrives. Today, our team at Bizfund is going to cover the construction company financing options you need to know about before it’s too late.

Why Construction Business Financing In Canada Is Different

Unlike many other businesses, construction companies don’t follow a steady income cycle. If you’re a contractor, you know this all too well. You know that a project you secure in January and only start in February will result in a meaningful payment weeks later. By this time, you’ve already bought or ordered materials and paid for labor. You may even have started using owned or rental equipment.

Unfortunately, this uneven project timeline affects almost every financing decision in the industry. It’s also important to know that there are months when contractors are naturally quieter than others. This is because you could be waiting on permits, inspections, or client approvals.

This is another important facet to consider when exploring financing options, because the financing you choose must account for the stop-start nature of your business. As a result, for many construction businesses, securing financing can be hard because they don’t have the same monthly revenue pattern, but this doesn’t mean it’s impossible.

The Progress Billing Gap: Construction’s Unique Cash Flow Problem

Another interlinking problem for construction companies is the progress billing gap. In fact, you might be thinking that this is your biggest issue. The progress billing gap works like this:

1. Your crew completes stages of work
2. You invoice for the work at these varying stages.
3. You must begin the waiting game to be paid for the work you have done.
4. Your company may also encounter hiccups like missing assign-off or inspection delay that pushes funds back for weeks.

What also causes a progress billing gap, creating unique cash flow problems for construction companies, is holdbacks, prompt payment rules, and lien legislation.

For example, in Ontario, the Construction Act covers areas such as adjudication, prompt payment, liens, and holdbacks.

Below, we look at how this affects Ontario construction businesses, but it’s important to know that other provinces have their own construction holdback, lien, or prompt payment rules.

Holdbacks

With holdbacks, a portion of each progress draw is withheld nd this is usually around 10%. What this means is you’ll complete the work, invoice for it, but you won’t receive the amount right away because that portion will sit until the lien period expires.

Prompt Payment Rules

After you submit a proper invoice, there is a set timeline for payment to move through the chain. Usually, if you are the owner, you will pay general contractors, and general contractors will pay subcontractors within a pre-determined period. In theory, this creates structure but only if everyone follows the process properly.

Types of Financing for Canadian Contractors

After you start exploring trade business funding in Canada, it’s natural that the next step will be to evaluate the types of funding that may be available to your company. Although it may not seem like it at first, there are a fair few options available.

But which you choose will come down to how often you invoice, how long payments take, and how predictable your pipeline feels month-to-month. So, with this in mind, here’s where you‘re going to want to start:

• Merchant cash advance (MCA): Usually, a merchant cash advance suits contractors with steady income activity but uneven deposits. With this form of funding, your repayments move with incoming revenue. This means that quieter weeks don’t carry the same pressure as fixed payments. To put it in perspective, you can use an MCA to keep your installers paid while you wait for staggered client payments to clear.  
• Business line of credit: In most situations, you would use a business line of credit in smaller recurring gaps that show up between project stages. This form of financing is great for covering supplier invoices, short-term material costs, and fuel, without needing a full funding round each time. However, most contractors keep a business line of credit as a buffer and not something they rely on daily.
• Equipment financing: When contractors want new equipment that is tied directly to upcoming work, they can explore equipment financing. With this form of funding, you spread the cost over the period the asset is in use.

What Lenders Look for in a Construction Business

Now that you know the different types of construction loans, how do lenders assess a construction business? Well… you should know they are aware revenue doesn’t come in evenly. This isn’t some big secret. However, this does mean the focus shifts toward overall activity and reliability rather than the profits of a single month or a few months.

So, a lender will examine your application to determine whether work is ongoing and whether cash flow, even if uneven, is supported by real projects. This means they will usually look at several months of revenue to see patterns alongside any confirmed work that points to income in the near future. In addition, deposit structures can help, especially when you can show that part of a project, or projects, is already secured.

Seasonal Considerations for Canadian Contractors

When it comes to construction financing, it’s also crucial to remember that seasonality plays a huge role. In Canada, given its seasons, the construction you can carry out largely depends on the weather.

It mightn’t seem like it, but this can change how and when you use financing. For example, during the winter months, especially in colder regions, outdoor work can slow down or pause altogether. In these situations, as a contractor, you could be left covering fixed costs, such as wages, while you wait for activity to pick up again. This can be difficult, which is why some will turn to construction business financing in Canada during this period.

Then, when spring approaches, the situation typically flips. This means that demand increases fast, and your business needs to move faster to keep up. To plan ahead for this shift, many construction companies set aside funds in advance for the busy season or take out financing. With financing on hand, you have funds available to start on projects immediately without losing time waiting on supplies or turning jobs away.

How to Apply for Construction Business Financing In Canada

We’ll be the first to admit that applying for construction business financing in Canada can feel a bit overwhelming. However, it’s not as hard as you might be imagining in your head.

After you have a sense of timing, seasonality, and the type of financing that fits your business, the application process is pretty simple. Of course, certain financing solutions involve more red tape than others, but generally speaking, it’s not an insurmountable obstacle.

Usually, a lender will start by analyzing your financials and your credit score. Not all Canadian lenders will use your credit score as the sole determining factor, but banks rely on it heavily.

With this in mind, you’ll need to provide basic business details, recent bank statements, and proof of revenue. In most situations, invoices or contracts count as proof. Then, the review of your eligibility will focus on cash flow and your business’s overall activity. This gives lenders a simpler picture of how your company operates day-to-day.

When a lender has all of this, they can process your application and grant or deny approval. However, just know that approval timelines can vary. Some alternative financing solutions, like Bizfund, can offer approval in as little as one to two days, while banks could take several days, if not weeks. That’s why, depending on where you apply for financing, it’s crucial to do it before a gap becomes urgent, so you have more room to weigh your options.

The Wrap Up On Construction Business Financing In Canada

Construction business financing in Canada is a little trickier to navigate, but it isn’t impossible. This is especially true considering you now have a better understanding of your options, what lenders look for, and even how to apply.

​So, if you’re ready to explore funding and think a merchant cash advance is your best bet, you can contact us at Bizfund today. We offer MCAs for construction companies up to $300,000, and our approval process is much faster than most traditional lenders.