Funding for Construction Contractors in Texas

The draw schedule problem

A contractor on a larger project is usually paid in stages: a draw after a milestone, a pay application reviewed by the owner or lender, and a retainage amount held back until the end. Materials are bought and crews are paid as the work goes, so the contractor finances the project between draws. If the draw is late, a subcontractor's invoice arrives before the money does.

What Texas law says about late payment, and its limits

Texas has a prompt-payment statute for construction. Under Texas Property Code section 28.004, overdue amounts accrue interest from the day after the due date at one and a half percent per month. Texas also has a mechanic's lien process. Under section 53.052 of the Property Code, a lien affidavit is filed with the county clerk, and for a non-residential original contractor, the deadline is the fifteenth day of the fourth month after the month in which the work was completed.

This is a summary of public statutes and is not legal advice; deadlines and rules vary by contract type, and a construction attorney is the right person to ask about your own project. The practical point for cash flow is that these remedies take time, and payroll does not wait while they run.

For illustration: carrying a project between draws

A contractor wins a $400,000 commercial build-out. Payroll and materials run about $60,000 a month, and the first draw of $90,000 is scheduled after six weeks of work. Over those six weeks, the contractor spends about $90,000, so the first draw only repays what has already been spent, and the second round of costs is already underway. A late approval by even two weeks means another $30,000 of costs without payment. These round numbers are for explanation only, not our terms or typical results.

We describe cash-flow patterns here but do not promise funding for any category. Residential remodeling contractors face many of the same timing issues, and each application is reviewed individually.

Other pressures on a contractor's cash

• Bonding and insurance premiums are paid before work begins on many commercial jobs.
• Quarterly wage reports and unemployment taxes are due by the last day of the month after quarter end.
• Workers' compensation is optional for most private Texas employers, but general contractors often require it of subs, so subs may need to buy it before they are hired.
• Equipment wears out or is needed for a larger project than the one before.

Funding runs from $25,000 to $5,000,000. The application takes about five minutes, uses a soft credit pull, and funding can arrive in as little as 24 hours. Sole proprietors can apply.