Construction finance is a range of funding products designed to help businesses in the construction sector manage cash flow. It includes invoice finance, asset finance, business loans, bridging finance and more, each suited to different situations. Which one fits depends on the size of your business, how you get paid and what you need the funding for.
Construction businesses tend to carry costs long before payment arrives. Materials, labour, plant hire and subcontractor fees all go out early, while stage payments and invoice settlements can take weeks or months to come through. That pressure on working capital is one of the main reasons construction has had the highest insolvency rate of any UK industry for four years running.
Below we explain how construction financing works, the main types of construction lending available, what it typically costs and how to choose the right option for your business.
What is construction finance?
Construction finance is any type of business funding designed to help construction companies manage the gap between spending money and getting paid. It’s not a single product. It covers several different types of funding, from releasing cash tied up in unpaid invoices to financing equipment or borrowing against property.
The reason construction has its own category of business finance comes down to how payment works in the sector. Most contractors and subcontractors are paid through applications for payment, where a quantity surveyor or contract administrator certifies what’s been completed before the payment clock even starts. If there’s a dispute over scope or the paperwork isn’t right, that clock resets.
Most contracts also include retention clauses that hold back 3 to 5% of each payment until practical completion or the end of a defects liability period. That money can be tied up for months. On margins of 2 to 4%, retention alone can take a real chunk out of available working capital.
Construction finance products are structured around these payment patterns rather than treating the business like it has predictable monthly income.
Types of construction finance
There are several types of construction financing available in the UK. Which one fits depends on what’s causing the cash flow pressure and how your business gets paid.
Invoice and contract finance
Invoice finance lets you release cash from unpaid invoices or applications for payment before your customer pays. A lender advances a percentage of the value, typically 80 to 90%, and you receive the rest once the invoice is settled, minus a small fee.
For construction businesses on 30, 60 or 90-day payment terms, this is often the most natural fit because the funding scales with your workload. The more you invoice, the more you can draw on.
One thing to be aware of is that some lenders will advance against certified applications for payment while others will only fund raised invoices, so it’s important to check what stage of the payment cycle the provider is willing to work from. We go into more detail in our guide on invoice financing.
Asset finance
Asset finance lets you spread the cost of vehicles, plant, machinery or specialist equipment over time rather than paying upfront. The asset itself acts as security, which means approval is often more accessible than unsecured borrowing, even if your credit history isn’t clean.
For construction businesses, this is one of the more straightforward types of funding to arrange because lenders can clearly see what they’re financing and what it’s worth. It doesn’t work when you need general working capital rather than a specific piece of equipment. If you’re deciding between leasing and buying outright, our guide on hire purchase vs leasing breaks down the differences.
Business loans
A business loan gives you a lump sum to use as you need. Unsecured loans don’t require collateral but come with higher rates and lower limits. Secured building loans let you borrow more at a lower rate by offering property or another high-value asset as collateral.
In construction, a business loan tends to make most sense when the funding need doesn’t fit neatly into invoice finance or asset finance. If it does fit one of those, you’ll usually get better terms because the lender has clearer security.
A general-purpose commercial construction loan is typically the right option for costs that aren’t tied to an invoice or an asset, like taking on extra staff ahead of a busy period or bridging a gap between contracts. Our guide on how business loans work goes into the application process and what lenders look for.
Bridging finance
Bridging finance is short-term borrowing secured against property, usually repaid in full at the end of the term rather than in monthly instalments. Terms are typically 6 to 18 months and rates are higher than longer-term lending.
In construction, bridging is commonly used to buy a site quickly, fund a refurbishment, or move on an opportunity that won’t wait for a traditional mortgage application. It’s a useful tool when speed matters, but it’s not cheap and it shouldn’t be used to paper over a deeper cash flow problem.
If you don’t have a clear route to repaying the balance, whether through a sale, a refinance, or funds from another transaction, it can create more pressure than it solves. We explain more in our guide on bridging loans.
Development finance
Development finance funds the construction of a property from the ground up, or a major conversion or refurbishment. Unlike a standard construction loan, the money is released in stages as the build progresses, with a surveyor signing off each phase before the next tranche is drawn down. It’s designed for developers rather than contractors, but if your business takes on its own development projects, it may be relevant.
VAT and tax finance
A large VAT or corporation tax bill at the wrong time can put serious pressure on a construction business, especially if you’re already waiting on payments. VAT and tax finance lets you spread the cost over several months rather than paying it in one lump, which can make the difference between a comfortable quarter and a difficult one.
How to choose the right option
Over half of construction SMEs say it’s become harder to access finance in the last year, according to Bibby Financial Services’ 2025 SME Confidence Tracker.
A common reason is applying for the wrong product in the wrong place. A construction business that goes to their high street bank for a general-purpose loan when invoice finance would be a better fit is likely to get worse terms, a slower decision, or a decline they didn’t need.
| Your situation | Best starting point |
| Waiting on invoices or applications for payment | Invoice and contract finance |
| Need to buy or replace vehicles, plant or equipment | Asset finance |
| Need working capital that isn’t tied to an invoice or asset | Business loan |
| Need to move quickly on a property purchase | Bridging finance |
| Taking on a ground-up build or major refurbishment | Development finance |
| VAT or tax bill due at a difficult time | VAT and tax finance |
It’s common for construction businesses to have more than one funding need at the same time. A combination of products, each matched to a different pressure, will usually work out better than trying to solve everything with a single facility.
Different lenders also specialise in different types of construction financing. A lender that’s strong on invoice finance may not offer asset finance, and a high street bank that does business loans may not understand how applications for payment work in construction.
At Greenwood Capital, we work across the full range of construction lending options and can help you find the right combination based on how your business operates.
How to apply for construction finance
What you need to provide depends on the product. A construction loan secured against property will involve more paperwork and due diligence than an invoice finance facility or an asset finance agreement. But across most types of construction financing, lenders will want to see some combination of the following:
- Three to six months of business bank statements
- Your latest filed accounts or management accounts
- Details of current contracts, invoices or work pipeline
- Information about what the funding is for and how much you need
- Details of any assets being used as security
For development finance and commercial construction loans, you’ll also need a project plan, planning permission and a full cost breakdown. For asset finance, lenders will want a quote or specification for the equipment.
Before you apply
Construction is classified as a higher-risk sector by most lenders, which means applications are often scrutinised more closely than in other industries. That makes preparation more important.
Clean bank statements make a big difference. If your account shows regular income, a stable balance and no bounced payments, it tells the lender your business can handle repayments on top of its existing costs. If the last few months have been messy, it can be worth waiting until you have two or three cleaner months behind you before submitting an application.
Be specific about what the funding is for. An application that says “I need £60,000 to buy an excavator for a confirmed contract” gives the lender something concrete to work with. One that says “working capital” does not.
If your credit history has issues, that doesn’t necessarily rule you out, but it changes which lenders and products are realistic. Our guide on how to improve your chances of approval with bad credit goes into detail on what lenders weigh up and what you can do to strengthen your position.