In the UK, construction finance usually means funding advanced against your applications for payment, often before your client's surveyor has certified them. It's working capital for a contractor, not a loan secured on a building site. The same two words get used for both, which is how a lot of contractors end up talking to the wrong lender. What it solves is the problem every construction business recognises: the work is done, the money is weeks away, and your subcontractors, merchants, and plant hire want paying now.

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Your money arrives late, and it arrives short

Stage payments, retention, and Construction Industry Scheme deductions decide when your money turns up and how much of it does. None of them means anything has gone wrong. Together they explain how a job that was profitable on paper can still leave you short at the end of the month.

That gap is the sector's defining problem rather than an edge case. Construction had more company insolvencies than any other industry in the year to 31 August 2026 – 3,866, or 17% of all the cases where the industry was recorded – although that was 2% fewer than the year before. The orders usually aren't what's missing. The cash to carry them is.

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You're entitled to stage payments on work meant to last 45 days or more

The Housing Grants, Construction and Regeneration Act 1996 entitles you to payment by instalments or stage payments, unless your contract specifies, or both sides agree, that the work will take less than 45 days. You and your client set the amounts and the intervals between them. If you haven't, the Scheme for Construction Contracts fills the gap.

Two other parts of the same Act are worth knowing when a payment goes quiet. Your client has to pay the notified sum by the final date for payment, and if they don't, you have the right to suspend performance. And a clause making your payment conditional on your client being paid by someone else is ineffective, unless that third party is insolvent. In practice that means your own subcontractors get paid whether or not the money has reached you, which is how late payment down the construction supply chain ends up sitting with the firms least able to absorb it.

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Retention holds back about 5%, and half of it for a year or more

Retention is a slice of each payment your client keeps as security against defects, typically 5%. Customarily the first half comes back at project completion and the rest only once the defects liability period ends, usually 12 to 24 months later. The government's 2017 review of retentions found the average held from contractors was 4.8% of contract value.

So on a job you finish this spring, part of what you have earned stays contractually out of reach for another year or two. Almost no lender will advance against retention as part of a normal facility, because the recovery date is too far out to price. Take it out of your own forecast before you apply anyone's advance rate to what's left.

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The Construction Industry Scheme takes 20% off your labour element

Under the Construction Industry Scheme your client deducts 20% from your payment if you're registered, or 30% if you're not, and passes it to HMRC as an advance payment towards your tax and National Insurance. With gross payment status, nothing is deducted.

The deduction doesn't come off everything. Your client takes it after removing VAT, any materials you paid for directly, plant hire, fuel, and consumable stores, so it bites on the labour element – which on a labour-heavy package is most of the invoice. The VAT has gone from the payment too: since 1 March 2021 the VAT domestic reverse charge has applied to most construction services reported within the scheme, so your customer accounts for it and you no longer hold the money between invoicing and your return.

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What a £50,000 application for payment actually pays you

It's worth doing this arithmetic once on a job of your own, because the figure you budget against is rarely the figure on the application. Take a £50,000 application for payment, with 5% retention and the scheme deduction taken at 20% from a £30,000 labour element. The round numbers are an illustration rather than a typical contract, but the shape holds on most jobs.

Your subcontractors, your merchants, and your plant hire are owed in full, and you owe them whether or not your client has paid you. The retention comes back eventually and the deduction comes back against your tax bill, but neither pays anyone this month. That difference, between what you have earned and what you can spend, is the gap construction finance exists to cover.

Not all of it needs funding. Some of it is managing cash flow through the payment cycle: getting the application in the day the valuation is agreed, chasing the notified sum rather than waiting on it, and looking at how a client has treated other suppliers before you price the work. Large companies have to report their payment performance twice a year, and you can check when a business pays its invoices on GOV.UK.

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Four ways to fund the gap, and which one you need

Four routes fund construction work, and they differ in what secures them: your unpaid applications, your trading, your plant, or the site itself.

Construction invoice finance advances cash against the applications for payment you have already submitted, including ones your client's surveyor hasn't certified. Most providers sell it as construction invoice finance rather than as part of their standard book, and the uncertified part is why. Ordinary invoice finance buys a finished debt: you've delivered, you've raised a VAT invoice, and your customer owes a fixed sum. Construction doesn't work like that. You submit an application, the quantity surveyor values it, and a pay less notice can cut the sum before anything is certified. A facility that will advance against an uncertified application is pricing that risk, which is why the percentage advanced against one is usually lower than against a certified application.

Asset finance is the cheaper structure when what you need is a machine rather than cash. The lender takes security over the asset, so asset finance for plant and machinery is priced against something it can recover, and you pay for it across its working life instead of out of this month's cash.

Development finance is the route people confuse with the other three, because it also gets sold as construction finance. It behaves differently from the rest in three ways: the money is released in stages against a surveyor's sign-off as the build progresses, interest is usually rolled up into the facility rather than paid monthly, and the facility runs to the project's exit rather than for a set number of months. Homes England publishes the structure for its own Home Building Fund loans on GOV.UK: the Bank of England Bank Rate plus a margin set by your creditworthiness and the security you offer, an arrangement fee, and a first ranking charge over the property. The facility is sized against the finished scheme's projected value and against total project cost, so you need your own equity in it from the start.

We don't offer development or construction loans secured on a site. What we lend is working capital to a contractor: money to pay subcontractors, buy materials, or cover a tax bill while you wait to be paid. If you're buying land and building on it, read up on development finance secured on the site instead. If you're doing the work and waiting for the money, you're in the right place.

One naming point, because it costs people time. 'Building loan' and 'construction loan' have no settled meaning between them. In practice 'construction loan' usually means development finance secured on the site, while 'building loan' gets used loosely for anything from that to a business loan a builder takes out for working capital. Ask any provider which of these four they actually mean.

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Where an iwoca Flexi-Loan fits

If you're waiting on an invoice, a Flexi-Loan can cover the gap, and you can clear it with no early repayment fee once your customer pays.

On a construction contract, that gap is unusually easy to predict. You know roughly when your application goes in, when it should be certified, and when the money should land, so you know how long you need to be covered for. Most businesses borrowing to bridge a gap are guessing at that.

We've committed £300m of our £1.5bn 2026 funding to construction firms, as part of helping deliver the government's target of 1.5 million new homes by 2029. The pressure isn't spread evenly across the supply chain: it bites hardest on subcontractors two or three tiers down, where the retention is held by someone they never invoice and the defects period runs on long after their part of the work is finished.

An iwoca Flexi-Loan is a business loan with flexible repayment options, and three things about it matter when the problem is timing rather than profit. We charge interest on what you draw rather than on the full limit, so agreeing a facility larger than this month's shortfall costs you nothing extra. You have 30 days to draw down after approval, so it can be in place before a mobilisation spend and taken the week you need it. And there's no fee for repaying early, so it can be open for the three weeks between paying your subcontractors and being paid yourself rather than for a year.

It isn't the answer to everything a construction business needs funding for. If you're buying a telehandler that will earn for a decade, asset finance against the machine is usually the cheaper structure – though not always the quickest, and a job that starts next week won't wait for a lease to be arranged.

Flexi-Loan in action: The Building Co.

When The Building Co. landed a new project during a quieter period, founder Ray Iqbal needed to buy specialist equipment quickly. iwoca approved and funded Ray within 48 hours, helping him take on the opportunity without putting pressure on cash flow.

Read Ray's story

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What it costs and what you're signing up to

We charge interest on the amount you draw, from the day you draw it, and there's no fee for repaying early, so the cost follows how long you actually hold the money. You can borrow £1,000 to £1m over a fixed term of between 12 months and five years, so the repayment schedule is known from the outset. Because early repayment carries no fee, you can clear it as soon as the cash arrives, and many of our customers only take out our finance for a few weeks, or even days.

Every new Flexi-Loan needs a personal guarantee from at least one director, and we lend to UK limited companies.

A decision is made within 24 hours, but it might be longer depending on the complexity of the request. A quick decision isn't a light one: we look at your revenue and what your business can afford to repay before we make an offer, and our credit team reviews larger or more complex applications.

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