Not directly. A signed contract proves someone wants your work; it is not collateral, because until the work is done and billed there is nothing a lender could collect if you failed to perform. Lenders lend against receivables once you invoice, and some will lend against a short, capped slice of unbilled work. To finance the ramp itself, the tools are a mobilization advance negotiated into the contract, an unbilled-receivable sublimit on a line, purchase order financing for goods, or a term loan sized on the cash flow the contracted revenue produces. Each rests on your customer's credit and your record of billing and collecting on work like this.
- Signed contract
- Evidence of demand, not collateral
- Unbilled work
- Generally ineligible, or capped in a small sublimit
- Invoiced progress billings
- Counted by some lenders once billed, less retainage and disputes; excluded by many
- What finances the ramp
- Customer advances, unbilled sublimits, PO finance for goods, cash-flow term debt
- What the lender tests
- The counterparty's credit and your billing and collection history
Why a contract is not collateral
An asset-based lender advances against things it could turn into cash if the business stopped: invoices a customer owes for work already accepted, inventory it could sell, equipment it could auction. A signed contract is a promise on both sides. The customer promises to pay if you perform. If you stumble halfway through, the customer owes you nothing for the unfinished part, may hire someone else to finish it, and may charge you the difference. A lender holding an assignment of that contract holds a claim that shrinks the moment it is needed.
That is why every borrowing base starts with billed receivables and why unbilled revenue sits on the ineligible list. Backlog is the same problem at a larger scale: a schedule of work you expect to do, for customers who can usually cancel or delay, priced on estimates that may not hold.
Four features of contract work make lenders more careful still:
- Setoff. A customer unhappy with one job can hold back payment on another. The lender's receivable is only as good as the whole relationship.
- Retainage. The share of each progress billing the customer holds until completion is owed, but not payable, and may never be paid in full if punch-list items or warranty claims arise. Lenders treat it as ineligible until the job closes out.
- Progress billings. Even a billed invoice is weaker when the job is unfinished: the customer can offset what it pays against the cost of completing the work. Many asset-based lenders exclude progress billings entirely; the ones that lend to contractors count them but watch the work-in-progress schedule closely.
- Pay-when-paid. A subcontractor paid only when the owner pays the general contractor carries two credit risks, not one.
A contract proves demand. It does not prove collateral. The financing case rests on who the customer is and how reliably you have billed and collected on work like this.
How lenders treat each stage of a contract
What a lender will count changes as the work moves from signature to cash. Knowing where each dollar sits tells you what a line can fund today and what needs a different structure.
| Stage | What exists | How an asset-based lender treats it |
|---|---|---|
| Signed, not started | A contract and a schedule | Not collateral. Useful as evidence for a cash-flow lender. |
| Work in progress, unbilled | Costs incurred, revenue earned but not invoiced | Generally ineligible. Some lenders allow a capped unbilled sublimit if billing follows within a short cycle. |
| Progress billing issued | An invoice for completed work | Split. Many standard eligibility definitions exclude progress billings, because payment still depends on finishing the job. Lenders that know contract work count them, less retainage, disputes and anything aged past the cutoff. |
| Retainage | Amount held back until completion | Ineligible until the job closes out and the retainage is billed |
| Change order pending | Work done at the customer's request, price not agreed | Ineligible until approved and invoiced |
| Final billing, job accepted | An undisputed receivable | Eligible, subject to the usual concentration and aging limits |
Aging and concentration still apply once work is billed. Receivables more than 90 days past invoice are typically ineligible, and borrowing bases commonly cap any single customer at 20% to 25% of eligible receivables. A contractor with one large contract often finds that the customer who made the business grow is also the one the lender limits. The what lenders look for in an AR aging page covers how that is read.
The structures that do finance a contract ramp
The cash gap on a new contract sits between the first dollar spent and the first invoice collected. Several structures cover it, each suited to a different kind of cost.
| Structure | What it funds | What it depends on | Where it falls short |
|---|---|---|---|
| Mobilization or deposit from the customer | Start-up costs: materials, crews, setup | Negotiating it into the contract before signing | Customers resist it, and it has to be earned back against billings |
| Unbilled-receivable sublimit on a line | Work performed between billing dates | A lender comfortable with your billing cycle and job-cost reporting | Capped, short-dated, and priced into the lender's monitoring |
| Purchase order financing | A supplier's invoice for finished goods you resell | A creditworthy customer and a reliable supplier | Does not fund labor, services or fabrication |
| Asset-based line on billed receivables | Working capital once invoices go out | Frequent billing, clean aging, and a lender that counts progress billings | Nothing until the first invoice |
| Cash-flow term loan | The ramp as a whole: hiring, equipment, working capital | Earnings, and contracted revenue that supports them | Sized on cash flow the business has shown, not on backlog alone |
| Equipment financing | Machines or vehicles the contract requires | The equipment's value | Covers only the equipment |
Customer advances first. The cheapest money in any contract is the customer's. A mobilization payment, a deposit on materials, or a billing schedule that invoices at milestones front-loaded toward your costs all shrink the gap before a lender is involved. The time to ask is before signing; afterward, the only lever is a change order.
Unbilled sublimits. Some asset-based lenders will advance against unbilled work for a customer that is invoiced on a regular cycle, typically at a lower advance rate than billed receivables and inside a fixed sublimit. The lender will want to see job-cost reports and a history showing that unbilled work reliably turns into undisputed invoices. It is a bridge between billing dates, not financing for the whole contract.
Cash-flow term debt. When the contract changes the size of the business, the better answer is often a term loan sized on the earnings the company already produces, with the contract as support for the forecast. Conventional bank lenders commonly look for debt service coverage of at least 1.25x, measured on results the business has already reported; a lender may give some weight to contracted revenue, but rarely lends on backlog alone. The ABL vs cash-flow line page explains the difference in how each is sized.
Purchase order financing is narrower than it sounds. It pays a supplier for finished goods that ship to your customer, then is repaid when the customer pays. It does not fund wages, subcontractors or in-house fabrication, so a services or construction contract rarely fits. Purchase order financing vs a line of credit sets the two side by side.
What decides it: the counterparty and your billing record
Because the contract is not collateral, the lender's judgement shifts to two questions.
Who is the customer? A government agency, a large prime contractor or a well-capitalized buyer pays reliably once work is accepted, and its invoices are the kind lenders want. Federal contract payments can be assigned to a lender under federal law, which is one reason government contractors can often build a line around a single customer that would otherwise hit a concentration cap. A thinly capitalized developer or a general contractor that pays only when it is paid gives the lender less comfort, however large the contract.
Have you done this before? A lender reads your history of contracts like this one: how often you bill, how fast customers pay, how often change orders and disputes arise, and whether jobs finish near the margin they were bid at. For contractors the key document is the work-in-progress schedule, which shows each open job's contract value, costs to date, billings to date and estimated cost to complete. Persistent underbilling, where earned revenue runs ahead of invoices, tells the lender cash is trapped in unbilled work; job margins that fade as work proceeds tell it the backlog is worth less than its face.
A company that has billed and collected cleanly on smaller contracts for the same kind of customer can finance a larger one. A company taking its first contract of a new size, for a new kind of customer, is asking a lender to share a risk the lender has no way to measure.
Preparing the file
Transparent's checklist for contract and purchase-order finance starts with the contract itself:
- The purchase orders or contracts being financed
- A supplier quote or pro-forma invoice for the goods, where goods are involved
- Bank statements for the last three months
- A debt schedule and your UCC position: every existing lien
- A customer list with the balance each owes, to show concentration (optional)
- A P&L, if the books are kept (optional)
- Business tax returns for two to three years (optional)
Where the answer is a line of credit rather than a single-contract facility, add the line-of-credit checklist: an AR aging by customer with days outstanding, an AP aging, a balance sheet and P&L, the documents a borrowing base certificate is built from. Contractors should add the work-in-progress schedule and a backlog schedule by customer and expected billing month. The existing liens matter more than owners expect: if a prior lender or a cash advance holds a blanket lien, no new lender can take the receivables the contract will produce until that lien is released or subordinated.
Transparent reads the contract, the billing history and the financials, builds a model of the cash gap month by month, and puts the file in front of the lenders suited to it. The book holds 235 lenders that write asset-based loans and lines and 1,148 that write term and private credit. Once the documents are in, the full lender package, including the financing model, lender presentation, blind teaser and underwriting memo, is built in a day.
Common questions
- Can I get a loan based on my backlog alone?
- Rarely. Backlog supports a forecast, but lenders size loans on earnings the business has already shown and on collateral that exists today. A strong backlog helps a lender get comfortable that recent results will hold or grow; it does not replace them.
- Will a lender advance against unbilled work in progress?
- Some asset-based lenders will, inside a small sublimit, at a lower advance rate than billed receivables, and only where invoices reliably follow within a short billing cycle. Most exclude unbilled work entirely.
- Is retainage eligible for my borrowing base?
- Usually not until the job is complete and the retainage has been billed and is payable. Until then it is money owed on conditions that have not been met.
- Does purchase order financing work for a services contract?
- No. Purchase order financing pays a supplier for finished goods shipped to your customer. Labor, subcontractors and in-house fabrication fall outside it, so services and most construction contracts need a line, a customer advance or term debt instead.
- Does a letter of intent or an award letter count?
- It helps show a lender the opportunity, but it is weaker than a signed contract, and neither is collateral. Expect a lender to wait for the executed contract and, for asset-based lending, for the first invoices.
- What if my one big customer is most of my receivables?
- Borrowing bases commonly cap any single customer at 20% to 25% of eligible receivables, so a concentrated book yields less availability than its face. Lenders can lift the cap for a very strong customer, such as a government agency, or credit insurance can support a higher limit; both are negotiated, not given.