Won a big contract? Funding the start-up costs

The phone call every business owner wants: you’ve won the job. Then the arithmetic starts. Materials have to be ordered now. Extra staff start next week. Equipment needs hiring. And the first payment from the client won’t arrive for six weeks — maybe longer. A great contract can still break a business if the cash gap isn’t funded.

Why does a big contract create a cash shortage?

Because costs come first and payments come later:

• Materials and stock ordered upfront or on 20th-of-the-month account terms.
• Wages for new and existing staff, paid weekly or fortnightly — plus the PAYE that follows by the 20th of the next month for most employers.
• Mobilisation — equipment hire, transport, site set-up, insurances.
• Payment terms — monthly progress claims, 20 working days to pay, sometimes more.
• Retentions — on many construction contracts, part of each payment is held back.

The bigger the contract relative to your normal turnover, the bigger the gap.

How do I work out how much to borrow?

Build a simple contract cash flow:

1. List every cost by week, from day one to the end of the job.
2. List every expected payment by the date it will actually arrive — not the invoice date.
3. Deduct any retention from each payment.
4. Run a cumulative balance. The deepest point is your peak funding need.
5. Add a buffer for late payment and variations.

business.govt.nz suggests forecasting with pessimistic as well as realistic assumptions. For contract funding, plan on the pessimistic one.

Which funding fits contract start-up costs?

Contract profile	Usually fits	Why
Monthly progress claims over many months	Line of credit	Draw as costs hit, repay as claims land
Single payment on completion	Short-term loan	Repaid in one go from the final payment
Very large contract relative to turnover	Property-secured facility	Larger amounts and longer runway
Contract needs stock bought upfront	Short loan plus line of credit — see stock purchase	Separates the one-off buy from ongoing costs

Signed and ready to go? Start your application and we’ll aim to have the funding in place within a day.

How fast can contract funding be arranged?

With your bank statements, ID, the signed contract and its payment schedule ready, our aim is funding within 24 hours of your first application. Unsecured facilities move fastest; property-secured amounts from $20k to $250k can be possible the same day, and larger amounts within 24–48 hours.

What lenders look for:

• The contract — signed, with scope, value and payment terms.
• The client — who they are and how they pay.
• Your track record — have you done similar work, even at a smaller scale?
• Your cash flow — a simple forecast shows you’ve thought it through.

An illustrative contract

A Christchurch commercial painting firm with turnover of about $1.4m a year wins a $680,000 school repaint over five months, paid by monthly progress claims, with retention held on each. It needs to hire six extra painters and buy $90,000 of materials upfront. Its forecast shows a peak funding need of about $210,000 in month two. A line of credit sized to that peak is drawn as wages and materials hit and repaid from each progress payment. (Illustrative only.)

What risks should I plan for?

• Late payment. The most common cause of contract cash crises. Allow for it.
• Variations. Extra work you’re asked to do before it’s priced and approved.
• Disputes. A held-up claim can freeze several weeks of income.
• Overstretching. Taking resources from existing clients to service the big one.
• Tax timing. A bigger turnover means bigger GST and PAYE payments; keep them funded.

Our guide to planning an exit from short-term finance includes a checklist for contract-backed borrowing.

What do lenders ask about the client?

The contract is only as good as the client paying it. Lenders often ask:

• Who is the client? A council, a large company, a main contractor, a private developer.
• How do they pay? Monthly progress claims, milestones or completion.
• What’s their record? Have you worked for them before, and did they pay on time?
• What are the payment terms? Twenty working days, the 20th of the month following, or longer.
• Is there retention, and when is it released?

A well-known client with a good payment record makes the repayment source far more believable, and can make a larger facility possible. If the client is new to you, a smaller initial facility that grows with the job can be a sensible compromise.

Contract funding: a quick self-check before applying

Run through these five points. If you can answer them, the application will move quickly:

1. Do I have the signed contract and the payment schedule?
2. Have I mapped costs and receipts week by week, including GST and PAYE?
3. Do I know my peak funding need, plus a buffer for late payment?
4. Do I know which facility type suits — revolving or one-off?
5. Have I got six months of statements, ID and company details ready?

With those in hand, our aim of having you funded within 24 hours of your first application is realistic for most contract facilities.

Say yes to the job — and fund it properly

Winning a big contract should be the start of growth, not a cash crisis. Check what you qualify for in about 60 seconds. Asking costs you nothing on your credit file, your enquiry is handled by one specialist and not broadcast to lenders, and a real person will look at the contract and payment schedule with you. Please give accurate figures for the contract value, upfront costs and payment terms — that’s what lets us size the facility right first time.