Quick answer
Property equity can fund the upfront costs of a large new contract, such as materials, labour, equipment hire and mobilisation, when the contract is signed, the client is reliable and payment milestones clearly repay the loan. Map the costs against the payment schedule, allow for late or disputed progress payments, finance equipment separately where possible, and negotiate deposits or progress billing to reduce how much you borrow.
Key points
- Only borrow against a signed contract with a reliable client.
- Map upfront costs against payment milestones week by week.
- Late or disputed progress payments are the main risk.
- Negotiate deposits and progress billing to shrink the need.
- Finance vehicles and equipment on their own security.
Winning a contract that’s bigger than anything the business has done before is a milestone. It’s also a cash-flow test. Materials, labour, equipment and subcontractors usually need paying long before the client’s first payment arrives. When the business account can’t carry that, property equity is one way to bridge it.
Done well, it’s one of the most productive uses of a second mortgage: the money funds work that’s already sold. Done poorly, it ties the family home to someone else’s payment habits.
Is the contract solid enough to borrow against?
Before anything else, check the contract itself:
- Is it signed? A letter of intent or verbal agreement isn’t enough to borrow against property.
- Who’s the client? Their payment history, financial strength and reputation matter as much as the contract value.
- What are the payment terms? Milestones, retention, time to pay after invoice.
- What are the variation and dispute clauses? Disputes delay payments.
- Is there a deposit or mobilisation payment? If not, can you negotiate one?
How do you map costs against payments?
Build a week-by-week or month-by-month schedule for the contract:
| Period | Costs out | Payments in | Running balance |
|---|---|---|---|
| Month 1 | Materials, mobilisation, labour | Deposit (if any) | Lowest point |
| Month 2 | Labour, subcontractors | First progress claim (if approved and paid) | Recovering |
| Month 3 | Labour, completion | Second progress claim | Positive |
| After completion | Defects, make-good | Retention released | Final |
The deepest point of the running balance is the amount to fund. The payment that brings it back above zero is the exit.
business.gov.au’s guide to managing cash flow emphasises planning cash flow before taking on work and tracking it as you go. For a large contract, it’s the difference between a profitable job and a stressful one.
What are the main risks?
- Late progress payments. The single most common reason contract funding runs over.
- Disputed claims. A variation argument can hold up a payment for weeks.
- Cost overruns. Materials prices or labour hours above estimate.
- Retention. A portion of each payment withheld until after completion.
- Concentration. One large contract can crowd out other work.
Each of these argues for borrowing a little less than the full gap where you can, and choosing a term with plenty of slack. If the contract and your schedule look solid, you can ask a specialist to test the funding, with no credit check at the enquiry stage.
How can you reduce what you borrow?
- Negotiate a deposit or mobilisation payment.
- Ask for more frequent progress claims, such as fortnightly rather than monthly.
- Negotiate supplier terms for the contract’s materials.
- Finance equipment separately. Vehicles and machinery can often secure their own finance. See equipment finance.
- Use a line of credit for the up-and-down labour costs, and a lump sum only for the upfront materials. See line of credit.
What exit fits contract funding?
The exit is the client’s payments. Make it robust:
- Identify which payments repay the loan and when they’re expected.
- Add slack for late approval and payment.
- Account for retention, which may not be available until well after completion.
- Name a fallback, such as other receivables, an asset sale or a refinance.
The exit plan checklist can help you test this.
An illustrative example
A civil contractor wins a $1.1 million council project. Materials and mobilisation require $280,000 in the first six weeks. The council pays progress claims monthly, typically within 30 days of approval, and holds 5% retention. The contractor negotiates a modest mobilisation payment and finances a new excavator separately on its own security.
The remaining gap is $210,000. The owners borrow that against an investment property with a comfortable cushion, on a term of nine months to allow for slippage, with the second and third progress payments as the exit and a fallback of the business’s receivables from other jobs. Illustrative only.
After the contract
Once the contract pays out and the loan is repaid, it’s worth reviewing what you’d do differently next time: progress billing, standing facilities sized for larger jobs, or a lower concentration of work with one client. business.gov.au’s guide to growing your business suggests reviewing your business foundations and risks as you scale, which is good advice after a step-change contract.
What if the contract has retention or long payment terms?
Retention, where the client holds back a percentage of each payment until after completion or a defects period, is common in construction and some government work. It means part of the money you’re relying on arrives months after the job is finished. Long payment terms do something similar.
Neither should be ignored when sizing a loan. Build your cost-and-payment schedule with retention shown as a separate, later receipt, and don’t count it towards the main exit. If retention is significant, treat it as a fallback or a bonus rather than the repayment source.
It’s also worth asking whether the client will accept a bank guarantee or insurance bond instead of cash retention. If they will, more of each payment arrives on time, and the amount you need to fund shrinks.
Fund the work you’ve already won
If you’ve signed a contract that needs funding before it pays, send a short enquiry with the contract value, the payment schedule, the upfront costs and the property you’d use. One specialist will look at whether property equity is the sensible tool, with no credit check when you enquire and no distribution of your details. Please be accurate about the payment terms and the client. They are what the loan really depends on.
Frequently asked questions
Can I borrow against my home to fund a contract I've won?
Yes, for business purposes. The key is that the contract is signed, the client is reliable, and the payment schedule clearly repays the loan with room for delays.
What if the client pays late?
That's the most common reason contract-funding exits slip. Choose a loan term with slack beyond the final expected payment, and keep a fallback in mind.
Should I borrow for equipment the contract needs?
If the equipment has ongoing value, consider financing it on its own security. That keeps the property loan to the costs that can't secure themselves, like labour and materials.
Can I ask the client for a deposit?
It's worth asking, especially for large contracts. A deposit or mobilisation payment reduces how much you need to fund and shows the client's commitment.