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Growing construction firms hit the same wall: you finally win bigger jobs, but now you need more equipment and more people before the money shows up.
Construction in Canada is huge – construction GDP was about $164.5 billion in 2024, even after a slight dip from 2023. (BuildForce Canada) And SMEs dominate: construction has the highest share of small and medium-sized enterprises of any industry. (Statistics Canada)
At the same time:
So you’re paying crews every two weeks, you’re asked to mobilize more iron, and your cash is stuck in receivables and holdbacks.
If you try to fund everything from the same pot of cash – or the same single loan – you end up either:
The more sustainable approach is two separate funding strategies:
We’ll walk through how to do that in the Canadian context.
Key point: Use long-term capital for long-term assets (equipment), and short-term capital for short-term needs (payroll, fuel, subs, materials). If you mix these up, growth gets expensive fast.
Here’s the blunt, slightly contrarian view from a credit lens:
If your construction company is growing, you almost never want to pay cash for major yellow iron.
Why?
Instead, aim for a structure like this:
That split keeps cash free for people and keeps your leverage backed by real assets, which lenders and bonding companies both like.
Key point: For most growing construction firms, leasing big equipment is more cash-efficient and credit-friendly than paying cash or relying on general-purpose term loans.
In Canada, term loans and leases are both common ways to fund equipment. Term loans give you a lump sum repaid over a fixed term. Leasing spreads the cost over the useful life of the asset, often with flexible end-of-term options.
Leasing is especially helpful for construction because:
Start by mapping what you need. If it has a serial number and throws off revenue – excavators, skid steers, dozers, dump trucks, graders, concrete plants – there’s a good chance it falls within eligible equipment that can be financed.
From there, you can layer different structures.
A standard equipment lease lets you:
With Mehmi’s equipment financing overview, you’re generally aligning payments with the economic life of the asset, not short-term cash-flow spikes. This keeps your monthly obligation reasonable relative to what the machine earns on site.
Example: Instead of tying up $250,000 cash in a new excavator, you could lease it over 72 months with a modest buyout, and keep that $250,000 as a buffer for payroll and extra site costs.
If you know you’ll be adding more gear over the next 12–24 months, an equipment line of credit can be more practical than applying deal-by-deal:
This structure is very attractive for mid-sized contractors in residential, civil, and road work who see a steady ramp in equipment needs.
Once you’ve built up a solid fleet, asset based lending lets you borrow against the appraised value of that equipment:
For contractors with equity in iron but tight cash, asset-based lending can be a cleaner, more transparent solution than stacking high-rate unsecured loans.
If you own machines outright – or nearly – a refinancing or sales leaseback can inject cash back into the business:
Internally, these deals require careful documentation: original purchase invoices, proof of payment, current registration, and clear reasons for refinancing. But from your side, the key question is: can this machine still reliably earn revenue for the full new term?
When structured properly, sale-leaseback is one of the most efficient ways to fund a growth spurt – especially when that lump sum is earmarked for payroll and project mobilization.
Many construction firms are also running fleets of dump trucks, lowboys, and service trucks. Those can be financed via:
Transport-oriented lenders will care about annual mileage, route types, and client mix. But the same principle applies: iron = long-term asset, so use term-appropriate financing rather than cash or short-term loans.
Key point: Payroll, subs, fuel, and small tools should be funded with flexible, shorter-term credit that turns over as you complete jobs – not with 5- to 7-year debt.
While your equipment leases handle iron, you still need a buffer for:
Here are the main tools Canadian construction firms use.
A business line of credit is usually the core working-capital tool:
For construction, we like to see lines sized to cover at least one to two months of payroll and fixed overhead. Lenders will look at your average bank balances, cash-flow volatility, and credit history.
A working capital loan is a term loan designed to fund specific growth moves:
These loans are repaid over a defined term (often 12–36 months), with fixed payments. They’re best when the added payroll and overhead will generate recurring revenue, not just a one-off spike.
Because construction payment cycles can sit in the 51–83 day range, (Procore) and holdbacks stretch cash further, invoice or freight factoring can be a lifesaver:
Factoring is particularly helpful if your clients are good but slow-paying institutions, or if you’ve exhausted traditional line-of-credit capacity.
A merchant cash advance (MCA) advances a lump sum repaid as a percentage of your card sales. In Canada, they’re used more in retail and hospitality, but can show up with smaller trades businesses.
MCAs can fund very quickly, but they’re expensive. Swoop’s guidance is clear: they’re one of the higher-cost forms of working capital and should be used only when you understand the total cost and short-term nature of the product. I would never use an MCA to buy a piece of equipment; at best, they’re a last-resort bridge for short gaps, and even then you should be talking to your advisor about better options.
Sometimes you just need a straightforward loan:
A good rule of thumb: if the need is more than 24 months in nature (e.g., building out a permanent project management team), a term working capital loan is appropriate. If you’re just bridging receivables for a few weeks, a line of credit or factoring is cleaner.
Key point: The cheapest financing overall is rarely “lowest rate”; it’s “right tool for the job.” Mismatching term and purpose is how contractors end up over-leveraged or short on cash.
Here’s a simple comparison:
Three common mistakes I see in files:
Getting this “tool-matching” right is exactly what a construction-savvy advisor is for.
Key point: If you understand how lenders assess construction risk, you can position your company to get both equipment and working capital approved on better terms.
Canadian lenders will usually look at four big buckets:
For start-ups (0–2 years), lenders want to see:
For established firms, they’ll check your years in business and whether your revenue trend aligns with the financing ask.
As amounts grow (typically over $100,000), lenders will want:
BDC’s guidance mirrors this: a strong loan application includes financial statements, realistic cash-flow projections, and a clear explanation of how the money will be used and repaid.
Lenders want a coherent story:
A short, honest write-up that covers sector, years in business, customers, and why now, goes a long way – especially for larger construction and forestry deals where sector-specific write-ups are mandatory.
For equipment and working capital, lenders decide:
Your job is to propose a structure that makes sense for your revenue and margins. Tools like Mehmi’s calculator help you see how different terms and rates flow through your cash-flow before you ever submit an application.
Key point: Don’t wait for a cash crisis. Build your equipment and working-capital stack before you sign the big contract.
Here’s a straightforward plan we’d walk a growing construction client through:
Using the roadmap:
Coordinating multiple lenders (bank operating line, equipment funders, factoring, etc.) is where firms like Mehmi add real value:
Scenario (anonymous, real-world style):
A mid-sized Alberta civil contractor doing municipal roadwork had:
They needed:
Step 1: Equipment plan
Instead of paying cash or relying on one big bank term loan, the advisor structured:
Step 2: Working capital structure
On the payroll side:
Outcome:
The key to making this work wasn’t a single magic product; it was matching three different structures to three different needs and coordinating them through one advisor who understood construction.
Key point: Banks are great for core banking and basic lines, but growth-stage construction usually needs more specialized equipment and cash-flow structures.
Your primary bank is usually the right place to start for:
But it may not be the best (or fastest) fit for:
That’s where a specialist like Mehmi can help you compare equipment financing options against working capital solutions and make sure you’re not over-collateralizing or taking on the wrong kind of debt.
If you’re looking at sizeable growth – a new division, multi-year public-sector contract, or big fleet expansion – it’s worth having us review your plan and run numbers with the calculator before you sign anything.
You can always reach out directly via Contact Us to walk through your specific situation.
Generally, no – not if you’re growing. For most construction firms, it’s more efficient to use equipment leases or similar structures for big machines and keep cash available for payroll, materials, and contingencies. Your people and projects are more fragile than your iron; protecting them matters more than avoiding all debt.
Technically, yes – some lenders will offer a larger term loan intended to cover multiple needs. But from a credit standpoint it’s often cleaner to:
That way, you’re not still paying for a one-time payroll spike five years from now.
The Bank of Canada has reduced its policy rate to 2.25% as of October 29, 2025, after several cuts from 2024 levels. (Bank of Canada) This generally flows through to lower prime-based lending rates over time. For you, that can mean:
But spreads (the markup over prime) still depend heavily on your risk profile and sector, so good financials and a clean file still matter more than the macro rate.
As a rough rule, aim to have access (through cash, lines, or loans) to:
With average construction DSO in the 51–83 day range globally, (Procore) many Canadian contractors are under-capitalized. The right mix might include an operating line, a working capital loan, and an invoice factoring back-up.
Yes, but the file has to be built carefully:
Specialist lenders are often more open to these start-up files than traditional banks.
Refinancing or a sale-leaseback makes sense when:
Lenders will want original invoices, proof of payment, registrations, and a clear reason for refinancing – especially if the goal is to support working capital or payroll.
And project reference documents:
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