Excavation contractors usually need two facilities, not one: a revolving line sized on receivables from site work, and an equipment facility sized on the fleet's orderly liquidation value. The line carries payroll, fuel, trucking and pipe between billing and collection, and bridges the winter or wet-season gap when equipment payments continue but revenue slows. Lenders exclude retainage and invoices past 90 days, watch concentration in a few developers or general contractors, and test coverage with every equipment payment included. Buying machines on the line, or relying on a clean-up period the season cannot meet, are the most common mistakes.
- Two collateral pools
- Receivables for the revolver; the equipment fleet for a term or equipment facility
- Receivables advance
- Asset-based lenders typically advance 80% to 90% of eligible receivables
- Usually excluded
- Retainage, invoices over 90 days, disputed quantities, some bonded-job receivables
- Seasonal risk
- Winter or wet-season slowdown while equipment payments continue
- Book
- 235 lenders in Transparent's book write asset-based loans and lines; 244 write equipment
The fleet is the balance sheet
Excavators, dozers, loaders, compactors, dump trucks and lowboys are most of what a site contractor owns, and most of them were bought with debt. Each machine often has its own lender: a manufacturer's finance arm, a dealer program, a bank equipment loan or a lease. The result is a stack of fixed monthly payments that run twelve months a year, whether or not the ground can be worked.
That shapes the line in two ways. First, a lender sizing a revolver looks at debt service with every equipment payment included; a contractor whose fleet payments are high relative to earnings has little room for a line at all. Second, the fleet can itself be collateral. Where machines are paid down below their value, the equity can support an equipment line or term loan appraised at orderly liquidation value, either on its own or as a tranche of an asset-based facility, the structure covered on machinery and equipment in an ABL.
Each financed machine usually carries a purchase-money security interest that ranks ahead of a bank's general lien on that machine. A lender offering to consolidate the fleet will want to pay those off; one lending only on receivables will want to know none of them reach beyond the machine. The debt schedule answers both questions.
A year of site work, in cash
In cold climates, site work follows the frost; in warm ones, the rainy season. Either way, cash and work are out of step. A typical northern contractor's year:
| Period | Work | Cash out | Cash in |
|---|---|---|---|
| Late winter | Little or none; bidding, equipment repair | Equipment payments, insurance, repairs, key staff | Last fall's retainage and slow final payments |
| Spring | Mobilization; road restrictions may limit hauling | Payroll restarts, fuel, pipe and stone, trucking subs | Little; first pay applications not yet paid |
| Summer | Peak production | Largest payroll and fuel bills | Spring billings start to arrive |
| Fall | Push to close jobs before freeze | Overtime, trucking, final materials | Summer billings; the best cash months |
| Early winter | Winding down, winterizing sites | Final payrolls, equipment payments | Fall billings; retainage held until closeout |
The two tight points are late winter, when payments run with nothing coming in, and spring, when the contractor fronts weeks of payroll, fuel and materials before the first pay application is paid. A line sized on the average month misses both. The method for finding the true peak is on sizing a working capital line, and the structures built for it are on how a seasonal line works.
Sizing the winter gap
Take a contractor with monthly equipment payments of 120, insurance and overhead of 60, and a small year-round crew of 40. From the first hard freeze to spring mobilization, roughly three months, it spends about 660 while its receivables run down. If fall billings bring in 400 during that stretch, the line has to carry the other 260, and then fund spring mobilization on top of it, when payroll, fuel and materials jump before any new billing is collected.
Two fixes are better than simply a bigger line. Equipment debt can be structured with seasonal or skip payments, so the fleet's payments fall in the months the fleet earns, which some equipment lenders offer and which refinancing equipment loans can introduce. And a line that requires an annual clean-up period should have it set in the fall, when a site contractor is flush, not in late winter, when it is at its low.
Ask for the clean-up period in the months your business is flush. A clean-up set for late winter is a covenant a site contractor is built to fail.
Who pays for site work, and how lenders count it
Site work is billed on pay applications, often on unit prices — cubic yards moved, linear feet of pipe laid, tons of stone placed — with quantities verified by the customer's engineer before payment. Asset-based lenders typically advance 80% to 90% of eligible receivables, but eligibility depends heavily on who the customer is.
| Customer | How the receivable usually counts | What the lender worries about |
|---|---|---|
| Municipalities and utilities | Eligible, less retainage; bonded-job receivables sometimes excluded | Slow approvals, public-payment procedures, the surety's rights to contract proceeds |
| General contractors on commercial work | Eligible once the pay application is approved | Pay-when-paid clauses; the general contractor's own credit |
| Private developers | Eligible, often with tighter concentration limits | The developer's construction loan: if its draws stall, the site contractor is paid last |
| Homebuilders and small private owners | Eligible if current | Many small balances, some slow; lien rights are the backstop |
| Retainage on any job | Ineligible until closeout | Not due until completion and exposed to punch-list offsets |
| Disputed quantities or unapproved change orders | Ineligible | Unforeseen rock, groundwater or unsuitable soil claims are often argued for months |
Concentration is common: a site contractor may do most of a season's work for two or three developers or general contractors, and borrowing bases commonly cap any single customer at 20% to 25% of eligible receivables. General eligibility rules are on eligible versus ineligible receivables, and what an examiner reads in the aging is on what lenders look for in AR aging.
Covenants, bonding and reporting
Bank lines to site contractors usually carry a debt service coverage covenant — conventional bank lenders commonly look for at least 1.25x — with every equipment payment counted in full, or a fixed charge coverage version of it, plus a minimum tangible net worth and sometimes a leverage cap that includes equipment debt. The broader set is on line of credit covenants.
Contractors doing public work carry bonds, and the surety reads the same statements: working capital, net worth and a work-in-progress schedule showing each job's estimated cost, billings and profit. Draws on the revolver are current liabilities, so a line does not add working capital in the surety's eyes; terming out a permanent portion can. Reporting to an asset-based lender adds a monthly borrowing base certificate with AR and AP agings, the WIP schedule each quarter, and periodic field exams and equipment appraisals.
What trips site contractors up
- Buying iron on the line. A machine drawn on the revolver ties up availability for years. Equipment belongs on equipment debt; the trade-offs are on equipment lease versus equipment loan and equipment financing versus an SBA 7(a) loan.
- Unit-price jobs that underrun. Bid quantities that turn out lower than estimated cut revenue while mobilization costs stay the same.
- Unforeseen conditions. Rock, groundwater and unsuitable soils add cost immediately and change-order revenue slowly, if at all.
- Developer stalls. When a developer's financing stops, the contractor holds lien rights and a receivable no lender will count.
- Fuel on fixed bids. Diesel bought at today's price for work bid months ago comes straight out of margin.
- Winter cash advances. Advances taken to cover off-season payments take daily debits from spring receipts, the problem covered on refinancing cash advances for contractors.
Building the file
Transparent's line-of-credit checklist asks for the AR aging by customer with days outstanding, the AP aging, the balance sheet, the P&L and a year-to-date P&L, a debt schedule and UCC position showing existing liens, and optionally bank statements and two to three years of business tax returns. For a site contractor two items carry the most weight: an equipment list with year, make, model, hours, lender and payoff for each machine, and a monthly revenue history across at least two years so a lender can see the seasonal shape rather than guess at it. A WIP schedule and the backlog by customer complete the picture.
Of the 1,800+ lenders in Transparent's book, 235 write asset-based loans and lines and 244 write equipment finance, and some do both in one facility. Once the documents are in, Transparent builds the full lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day, with the fleet's equity and the seasonal cash curve set out so lenders size the line for the winter, not the average month.
Contractors weighing a purchase rather than a line should read financing an excavation company acquisition. The SBA's lending record is on SBA loans to site preparation contractors and SBA loans to water and sewer line contractors, and the neighboring trades are covered on lines of credit for general contractors.
Common questions
- Can my equipment fleet support a line of credit?
- It can support an equipment line or term loan, sized on an orderly liquidation appraisal of machines with equity above their payoffs. Some asset-based lenders combine that with a receivables revolver in one facility.
- How do I cover equipment payments in winter?
- Either size a seasonal line for the off-season gap or restructure equipment debt with seasonal payments that fall in the working months. The second fixes the problem at its source.
- Will a lender count retainage in my borrowing base?
- Not until the job is closed out. Retainage is not due until completion and can be offset for punch-list work, so lenders treat it as ineligible until then.
- Why does my developer customer worry a lender?
- A developer pays site work from its own construction loan draws. If that financing stalls, the site contractor is often among the last paid, so lenders limit how much of the base any one developer can make up.
- Does a line of credit help my bonding capacity?
- Not directly. Line draws are current liabilities, so they do not add working capital in a surety's eyes. A committed line with unused room helps; terming out a permanent portion of the balance can improve working capital.