Contractors and trades: lending against lumpy revenue
A contractor's income arrives in lumps — a big draw in June, a holdback in November, a January where nothing moves. The loan payment, meanwhile, arrives every month like weather. That mismatch is the entire underwriting problem with trades files, and the owners who get funded are the ones who solve it on paper before the lender has to.
Why the average lies
Annual revenue divided by twelve produces a smooth monthly figure that has never once appeared in a contractor's bank account. A lender who sees only annual statements is left to guess at the shape underneath — and lenders guess conservatively. Your job is to replace the guess with the real pattern: monthly revenue for the last two or three years, side by side, so the seasonality shows up as a repeating shape rather than a mystery. A business that earns eight months of the year and knows it is fundable. A business that earns eight months and hides it is not.
A contractor's year isn't twelve months — it's eight good ones carrying four quiet ones, and the file has to prove you know which is which.
Receivables, draws, and holdbacks — make them legible
Trades cash flow has machinery most lenders' other clients don't: progress billing, payment terms that stretch past net-30, and statutory holdbacks that keep a slice of every job locked up for months after the work is done. Don't assume the lender will untangle this from your statements. Show an aged receivables list, name your average collection time honestly, and state holdbacks as their own line. Money you've earned but can't touch until spring is exactly the kind of thing that should be in the plan, not discovered in the meeting.
Work in hand beats work imagined
The strongest page in a contractor's file is the committed work list: signed contracts and accepted quotes with values and dates, next season's pipeline as its own honest category. Picture a $120,000 equipment request backed by $400,000 of signed work for the coming season — the lender can see what services the debt. The same request backed by "we're usually busy" asks the lender to underwrite your optimism.
Size the payment against the trough
Here's the discipline that separates funded trades files: the monthly cash-flow forecast has to show the loan payment clearing in February, not in the June average. That usually means one of three answers is in the plan — a cash reserve built in the strong months, an operating line for the quiet ones, or a payment small enough that the trough covers it. The common comfort line of roughly 1.25× coverage still applies, but for lumpy revenue the honest version is coverage in the worst months, not the mean.
Match the debt to the asset
Term loans for equipment that outlasts the loan; an operating line for the gap between paying your crew Thursday and getting the draw in six weeks. Contractors who put payroll gaps on a five-year term loan, or a $90,000 excavator on a credit line, end up with debt shaped wrong for the business — and lenders read a mismatched ask as inexperience. Say what each dollar is for and match the instrument to it.
The file that gets funded
Monthly history showing the seasonal shape. Receivables and holdbacks stated plainly. Signed work listed. A forecast where the worst month still makes the payment. None of it makes the revenue less lumpy — it makes the lumps predictable, and predictable is what lenders are actually buying. Build it once and it doubles as the operating dashboard your business should have had anyway.
A forecast that survives February
LenderReady builds your plan through a conversation — month-by-month projections that show the seasonal shape honestly, a payment tested against your quiet months, and the committed-work story in the format lenders expect.
Build my planLenderReady is an educational service, not a lender, broker, or financial advisor. Lending criteria vary by institution and change over time; treat this as a starting point, not a guarantee.