Merchant Cash Advance for Big Construction Projects

You've just been awarded a $200,000 construction contract. It's the sort of job that can make your business, increase your reputation, and help you move on to even larger opportunities. There's just one catch: you'll need $50,000 upfront to buy materials, rent equipment, and pay for initial labor before you invoice the customer.

Traditional bank loans can take months to approve and you need to break ground in three weeks. Your line of credit is maxed out. The client won’t budge on payment terms. What now?

That is why so many construction firms turn to MCAs. Financing a big construction project with a Merchant Cash Advance requires strategy, planning, and realistic expectations. Here's how to do it right.

Why MCAs Fit Large Construction Projects

• Construction financing is a challenge: huge upfront costs, but payment often comes 30, 60, or even 90 days after project completion, while you still have to pay suppliers, cover payroll, and keep equipment running.
• MCAs fill this timing gap by providing quick capital based on your revenue, rather than traditional lending criteria. If your company has a proven track record with steady revenues, an MCA may be able to fund you in a week, which can let you take advantage of opportunities immediately.
• Repayment flexibility also matches construction cash flow. As you collect completed-project payments, a portion goes toward repaying the advance; therefore, slower payments between projects automatically ease the burden.

Reality Check: The Cost

Let's get straight to it: MCAs are costlier than other financing means. Common factor rates for construction firms usually range from 1.20 to 1.45.

• For instance, borrowing $50,000 at a 1.30 factor rate means you repay $65,000—$15,000 in financing costs. For a $200,000 project, that might be manageable with healthy margins, but it could crush profitability for a $75,000 project with tight margins.
• Run the numbers honestly. Will this project generate enough profit to cover the MCA cost and still deliver acceptable returns? If not, you may need to negotiate better terms with the client or pass on the project.

Strategic Uses of MCAs for Large Projects

MCAs work effectively when applied consciously for specific needs:

• Material purchases for contracted work: You have a signed contract of $150,000 with milestones. The MCA covers $40,000 in materials to get started. You pay back as the milestones are achieved and your payments come in. Revenue from the project covers the financing cost.
• Equipment rental for time-sensitive projects: For a three-month project requiring special gear, an MCA pays the rental in advance. When you get paid, you pay back the advance quickly.
• Labor costs during payment gaps: If work runs in month one but the payment isn’t due until month three, an MCA covers payroll in that gap to keep the crews employed and the business running.
• Mobilization costs for remote projects: Most large projects involve transporting crews and equipment over long distances. An MCA pre-pays these mobilization costs in advance.
• The thread is simple: each use ties directly with a specific project with predictable revenue that will repay the advance.

Sizing Your MCA Correctly

• Borrow only what you really need. Every dollar borrowed costs $1.20 to $1.45 to repay.
• Calculate your true upfront needs: materials, equipment, labor, permits, and a small contingency for surprises. If that totals $35,000, borrow $35,000 to $40,000, not $60,000 just because you qualify.
• Larger advances cost more in absolute terms and create higher daily repayments, which could strain cash flow between milestones.

Timing Your MCA Application

• Apply only when you have a signed contract in hand. Lenders want to see revenues coming in. A contract with well-defined payment terms can considerably strengthen your application and improve the terms offered.
• Apply early enough that the funds arrive before you need them. If you need materials in two weeks, apply today. Most MCAs fund in 5–7 days, though delays can happen.

Structure Repayment Around Project Cash Flow

• If possible, negotiate terms that will align repayment with your project's payment schedule. If the client pays in three installments over six months, share that with the MCA provider.
• Some lenders offer flexible structures to construction firms: higher repayments against large client payments, lower holds between payments. This prevents cash-flow crunches.

Managing Multiple Projects with MCA Funding

• Many construction companies utilize MCAs to manage numerous simultaneous projects, many of which have different payment schedules. This works if you track what revenue is committed to repayments and what's available for operations clearly.
• Create a simple spreadsheet showing the expected payments from each project, along with your MCA obligations. Visibility like this prevents over-extending your cash flow.

Dangers to Avoid

• Don't use MCAs to rescue failing projects. If a project loses money due to scope creep, poor estimates or client issues, an MCA just adds debt.
• Avoid stacking several MCAs without careful planning. Three concurrent MCAs may create overlapping repayments that swallow your revenue.
• Don't count on change orders. Make up your mind based on contracted revenue, not some work that could happen.
• Other project costs such as the cost of materials, labor, and overhead as well as the repayment of an MCA must be budgeted for.

Alternatives Worth Considering

Consider the following options before committing to an MCA for a large project: Negotiate better payment terms, such as deposits or progress payments.

• Invoice factoring for completed work with outstanding invoices.
• Equipment financing, if your primary need is gear.
• Contractor financing programs from suppliers
• MCAs are for when speed is essential and no viable alternative exists. There should not be a default answer.

When MCAs Make Sense

MCAs will work for construction firms, despite the cost, under the following conditions:

• You have a profitable project, a tight start date, and no time for traditional financing. Your margins should be healthy enough to absorb the financing costs, and you should have a clear path of repayment from contracted revenue.
• A concrete contractor winning an $180,000 project with 25% margins could justify a $45,000 MCA for mobilization and materials. The project is still lucrative enough to pay for that, and it helps build a relationship with a repeat commercial client. 

The Bottom Line 

MCAs can effectively fund large construction projects if utilized correctly. The keys are understanding true cost, sizing the advance correctly, timing it with signed contracts, and ensuring margins justify the expense. Avoid using MCAs for unprofitable work or to save failing projects. Use MCAs for seizing time-sensitive opportunities that have proven profitability, which traditional financing cannot accommodate.

Large construction projects demand significant capital. MCAs provide that capital quickly and flexibly, just make sure the math works, the project is solid, and the financing cost truly supports growth rather than masking a flawed plan. Used wisely, MCAs can enable your construction business to take on projects that would otherwise be out of reach, expanding capacity and reputation with lasting dividends beyond a single contract.