Construction is one of the major UK industries – around 16% of all UK SMEs operate in construction, but many builders are often left confused as to why their loan applications are rejected. In practice, lenders focus on clear criteria, the “5 Cs” of credit: Character, Capacity, Capital, Collateral, and Conditions, along with company-specific indicators like cash flow, credit history, and management experience. However, there is much more you can do to get an application approved.
With the right preparation, you can clear up confusion and dramatically boost your chances of approval. It’s not simply about profit margins – lenders are more interested in risk. In 2023, 2 in 5 UK construction firms sought external finance, highlighting the demand, and therefore how crucial it is to understand what lenders are really looking for. This guide will walk you through how to meet those expectations and secure the funding your business needs.
How to get funding for a construction company
Here is a basic guide about how to get funding for a construction company.
Understand purpose and planning
Lenders expect a clear, realistic explanation for how you’ll use the funds. For construction, this means outlining the specific project (e.g. equipment purchase, staffing, or a new contract), breaking down costs, and showing expected returns. Even a one or two-page summary makes a big difference – it shows you’re not just gambling with borrowed money.
Meet basic criteria
In most cases, lenders want to see at least 12 months’ trading history and a minimum turnover, often at least £15,000 per month. If your firm is new or turnover is low, start with smaller loans or go down the secured business route, which will either be asset finance or loans secured on owned property.
Check your business structure
Running a limited company typically gives you access to more funding options. If you’re a sole trader, be aware that lenders will place more weight on your personal credit history.
Build a professional profile
Open a dedicated business bank account and keep your personal finances separate. It is important to note that lenders will not work with companies without a company bank account. Make sure your profit and loss statement, balance sheet, and cash flow forecast are all up-to-date and accurate.
The 5 Cs of lending (in a construction context)
The crucial 5 criteria for any loan application, adapted for a construction context:
1. Character (reputation & credit history)
Lenders assess both personal and business credit scores. Construction directors should aim to show a clean credit history, no defaults or CCJs, and a consistent pattern of paying suppliers and taxes on time. If you had issues in the past (e.g. COVID-related delays), explain them clearly and show how you’ve bounced back.
Remember, your personal credit score matters, especially since most construction loans now require a personal guarantee.
2. Capacity (cash flow & profitability)
Cash flow is more important than profitability. Project-based construction income is often lumpy, so lenders want to see how you manage that. Provide recent invoices, payment schedules, and explain how you handle retentions (which can tie up 2.5 -10% of your turnover).
A healthy debt service ratio, ideally income that is 125% of your total debt, shows you can handle repayments.
3. Capital (owner equity)
Lenders want to see you’ve got “skin in the game”. The more capital you’ve already invested such as tools, savings, or unpaid salaries, the more confident they’ll be. If possible, contribute new equity as part of your funding solution. It shows belief in your business.
4. Collateral (security)
Providing collateral such as plant equipment, vehicles, or property can dramatically strengthen your application. Even with unsecured loans, most lenders now ask for a personal guarantee, and the average amount backed by these guarantees is around £195,000 in construction.
5. Conditions (external factors & purpose)
Lenders want context: does your project make sense right now? If your contract is linked to government infrastructure or comes with a fixed payment schedule, say so. Outline a clear return on investment (e.g. “£40k investment unlocks £120k in pending contracts”). Vague ambitions like “growing our business” are unlikely to convince lenders.
Financial health & cash flow management
A crucial part of getting your application approved is generally good financial practice – key steps include:
Up-to-date financials
You’ll need to supply 12-24 months of trading history, including profit & loss accounts, balance sheets, and bank statements. Using cloud accounting or hiring an accountant helps ensure accuracy and builds lender confidence.
Debt levels
If your business is already carrying significant debt (e.g. overdrafts, credit cards, or multiple loans), this can raise red flags. Try to repay or consolidate existing liabilities before applying for new funding.
Profit vs. profitability
Even profitable businesses can suffer from cash flow gaps, especially in construction, where large payments may be delayed. Show how you manage these gaps: whether it’s through overdrafts, staged billing, or invoice factoring.
Invoice and retention finance
Since around 76% of construction clients pay later than 30 days, many SMEs use invoice finance to stay liquid. If you already do this, mention it – it shows you understand and actively manage your cash cycle.
Project plan & purpose of funds
Lenders will want to know details of the project, and what the funds will be used for:
Clarity on loan use
Be specific. Break down how much is for materials, new hires, equipment, or site costs. Example: “We need £50k to stock materials for Project X; this will complete Phase 2 and unlock £80k in payments.”
Link to revenue generation
Connect every spend to an income stream. For example, a new excavator might allow you to take on two more contracts worth £100k. Lenders want concrete figures that show return on investment.
Timeline and feasibility
Include a basic project timeline, such as start date, key milestones, and completion. Highlight if you have fixed-price contracts or guaranteed payments, which reduce lender risk.
Collateral and personal guarantees
To get a more favourable loan, certain extra measures can be taken:
Offering collateral
If you have equipment, vehicles, or business property, make it known. Collateral reduces perceived risk and may lead to lower interest or larger funding offers.
Personal guarantees
Be upfront about offering a personal guarantee. It’s standard in construction lending today – and, as mentioned, the average is around £195,000. Lenders want to know you’re confident enough in the project to back it personally.
Guarantee insurance and schemes
Mention schemes like the Growth Guarantee Scheme or personal guarantee insurance, which can reduce risk for both you and the lender. Rise Funding can help you explore these options.
Industry experience and track record
Your reputation matters! Here are some key points you might want to highlight:
Relevant expertise
List your qualifications, years of experience, and completed projects. Lenders often ask, “Who’s running this?” – they want evidence that you’re competent and experienced.
Client references or contracts
Signed letters of intent, existing contracts, or even upcoming tenders should be included. These help reassure lenders, especially if your turnover is low.
Stability in management
If you have long-standing staff or subcontractors, say so. Stability in your team is seen as a strong indicator of reliability and reduces perceived risk.
Documentation and preparation
Having the right documents in place and to hand can make the difference between a successful application and a delayed or rejected one.
Complete paperwork
Missing or inaccurate paperwork is one of the top reasons for rejection. Have these ready:
- Certified accounts
- Recent tax filings
- 6-12 months of business bank statements
- Copies of invoices or purchase orders
- Director ID and proof of address
- CVs of key personnel
- Construction-specific docs (builder’s licence, insurances, permits)
Accuracy and consistency
Ensure your documents tell the same story. Discrepancies – even small ones – create doubt. Have your accountant or broker double-check everything before submission.
Forecasts and plans
Attach a cash flow forecast or simple budget for the next 6–12 months. Some lenders now expect a stress-test scenario (e.g. “What happens if a client pays 30 days late?”).
Broker support
Consider working with a specialist broker like Rise Funding. We can help pre-screen your application, find the right lender, and ensure your documents are polished and complete.
Common pitfalls & reasons for rejection
Here are some of the most common reasons that your SME loan might have been rejected.
Incomplete or incorrect documents
Missing accounts or contradictions between figures can lead to instant rejection.
Poor credit history
Defaults, CCJs, or a record of late payments scare lenders. Previous liquidations are also a huge red flag in the eyes of a lender. Be proactive in explaining and addressing past issues.
Limited trading history or low turnover
Firms under a year old or with very low monthly turnover may not qualify for large loans. Consider starting small and building up.
Excess debt
High levels of existing borrowing suggest repayment risk. Repay or consolidate before seeking more finance.
Lack of collateral
If you’re applying for a secured loan, you’ll need assets. If you don’t have any business assets, be prepared to offer personal security.
Unclear purpose or wrong lender
A vague plan or applying to the wrong type of lender can hurt your chances. Tailor each application to the lender’s niche – brokers can help with this.
Conclusion & next steps
Success comes from meeting lender expectations on multiple fronts – reliable cash flow, strong financials, a clear plan, and realistic projections. Use a broker experienced in construction finance. A partner like Rise Funding can guide you to lenders who understand your business and improve your chance of approval. Being loan-ready isn’t about optimism, rather solid preparation. With the right paperwork, numbers, and strategy, you can secure funding confidently, avoid rejection, and move your business forward.
Ready to finish your project? Complete our questionnaire for an instant quote. Whether you need a small top‑up or a large development exit loan, we can tailor a solution that keeps your construction on track.
Rise Funding also offers in-depth guides on construction financing. See our Construction Loans – All You Need to Know and Home Construction Loans in the UK for information on loans, grants and payment schedules.
