Bank-ready: what a lender actually looks at before backing a builder

Lenders and surety providers do not assess builders the way they assess other businesses. They are not really asking whether you are profitable. They are asking whether you can absorb a bad job without taking them down with you. That is a different question, and it is answered by four documents most builders cannot produce on request.

Why do banks treat builders differently?

Because construction fails more often, and it fails faster.

Construction records the highest insolvency count of any Australian industry — 2,975 in 2023–24 — and the failures are overwhelmingly cash-timing failures in businesses that looked profitable right up until they didn't. A credit assessor has seen that pattern often enough to price it in.

So the questions behind the questions are:

• Can this builder fund the gap between costs going out and claims coming in, without us?

• If one job goes badly, does the business survive it?

• Do they know their own numbers well enough to see trouble early?

A tax return answers none of those. It is a backward-looking, business-wide, blended document filed months after the fact — and by the time it lands, the thing the assessor is worried about has either happened or it hasn't.

What does a lender or surety actually ask for?

The list is more predictable than most builders expect. Specialist construction lenders and surety providers generally want to see a current builder's licence, at least twelve months of trading history, clean and lodged BAS returns, your contract pipeline, and a project-specific exit or completion position. If you have restructured recently — sole trader to company, or into a trust — expect to be asked for an accountant's letter confirming trading continuity, because the entity's own history looks shorter than your actual track record.

That is the admin layer. It matters, and it is the easy part.

The layer that decides the answer is the financial one, and it is four documents.

1. A WIP schedule that is current

This is the single most revealing document you can hand a credit assessor, and the one most builders produce annually or not at all.

A work-in-progress schedule compares what you have earned on each live job against what you have claimed. Over-claimed means the cash sitting in your account belongs to work you have not yet done — it is a liability wearing a disguise. Under-claimed means you have done work you have not billed, which is real profit that has not turned into cash.

An assessor reads your WIP to work out whether your balance sheet is telling the truth. A builder who can produce a current WIP schedule on request has already answered the "do they know their own numbers" question without saying a word. We have written up the 15-minute monthly WIP discipline separately.

2. Net tangible assets, and the working-capital position underneath them

Regulators have already published what they consider adequate, which makes this the least ambiguous part of the exercise.

Queensland's QBCC Minimum Financial Requirements, for instance, set a maximum revenue a builder can turn over for a given level of net tangible assets, and require a current ratio of at least 1:1 — current assets covering current liabilities, dollar for dollar. Victoria and New South Wales run their own eligibility tests through the domestic building insurance and home warranty schemes. The thresholds differ by state and by scheme, so the specific number that applies to you depends on where you build and what you build.

What does not differ is the principle: your capacity to take on work is capped by the strength of your balance sheet, not by your order book. Builders routinely discover this the week they try to sign the contract that would have been their biggest.

Two things quietly wreck this ratio and both are fixable:

• Retentions sitting in current assets that will not be released for a year. Typically 5 to 10 per cent of contract value, with roughly half released at practical completion and the balance at the end of the defects liability period, commonly twelve months later. Classified honestly, a good portion of it is not current at all.

• Director loans and drawings taken as cash rather than planned as distributions. They come straight off tangible assets, and they are the first thing an assessor circles.

3. A rolling cash flow forecast

Not a budget. A week-by-week view of claims, receipts, wages, subcontractor payments, super, BAS and tax for the next quarter.

The forecast does two things in a credit conversation. It shows the assessor the gap you are asking them to fund, which makes the request specific rather than open-ended. And it demonstrates that you were already managing the risk before you walked in. A builder asking for a facility with a forecast is making a plan. A builder asking for a facility without one is asking for a cushion. This is the core of our construction cash flow forecasting work.

4. Aged receivables and a retention register

Debtor days by client, and a single page showing every retention held, the contract it sits under, the release trigger and the date. Most builders cannot state their total held retention inside ten minutes. It is usually one of the largest assets in the business.

What about bonding capacity?

Worth separating from bank lending, because builders often burn the wrong facility.

If your bank issues your performance bonds and bank guarantees, those instruments consume your bank facility limits — the same limits you need for working capital and equipment. Every bond you issue makes the next job harder to fund, which caps how many contracts you can run at once regardless of how much work you can win.

A surety facility provides the same contractual security through an insurer rather than a bank, without tying up cash or eating bank limits. Once the facility is in place, issuing a bond against a new contract is typically a 24 to 48 hour exercise with no fresh credit approval. For a builder whose growth is constrained by bonding rather than by demand, that is often the single highest-leverage conversation available — and it is one most builders have never had, because nobody raised it.

The bank-ready checklist

The four documents above are what decide the answer. This is the full pack you will be asked for, grouped the way a credit submission is actually assembled. Most of it should already exist. The point of the list is that it exists before someone asks, because the request always arrives with a deadline attached.

Statutory financials — the history

• Signed financial statements for the last two years, three if the facility is large or the entity is young. P&L, balance sheet and notes, prepared by your accountant and signed by the director.

• Tax returns for the same years, matching those statements. Company, and the trust as well if you run one.

• Depreciation schedule, current.

• If you run a group: statements for each entity, not just the trading company, plus the inter-entity loan positions. Assessors add up the group and then look for what has been moved between the parts of it.

Management accounts — the present

Historical accounts tell them who you were. These tell them who you are, and they carry more weight than most builders expect.

• Year-to-date P&L and balance sheet, dated no more than about 60 days ago. Older than a quarter and you will be asked to refresh them, which costs you two weeks.

• Comparatives — same period last year, and against budget if you run one.

• Trial balance at the same date.

• Bank-reconciled and BAS-reconciled. If the management accounts do not tie to the lodged BAS, that discrepancy becomes the entire conversation.

• Aged receivables and aged payables as at the same date, by client and by supplier.

The test being applied here is consistency. Three documents that agree with each other say the business is under control. Three that do not say nobody is checking.

Statement of assets and liabilities

• Business position, with retentions, WIP and director loans classified honestly — this is the net tangible assets working underneath the ratio discussed above.

• Directors' personal statement of position. Where a personal guarantee is in play, and below a certain scale it usually is, expect to provide your own assets and liabilities: property, superannuation, investments, personal debt, and the guarantees you have already given elsewhere. That last item is the one people forget and the one assessors verify.

• Plant and equipment register with the finance attached to each item — lender, balance, term, and whether it is a chattel mortgage, lease or hire purchase.

• Schedule of existing debt, every facility: lender, type, limit, drawn balance, rate, expiry date, security held, and any covenants. Write it out yourself rather than making them assemble it from statements.

• Property held, with valuations and encumbrances.

ATO position — the one that sinks applications

This is the section builders most often arrive without, and it is close to a pass/fail.

• Integrated Client Account statement — the running balance account, printed from the ATO portal and dated. It shows at a glance whether you owe, how long you have owed it, and whether you have been paying.

• Income tax account statement.

• BAS lodgement history, last four to eight quarters. Lodged and paid are two different tests and both are applied.

• Superannuation guarantee: paid on time, no outstanding superannuation guarantee charge. Unpaid super is read as a solvency signal, not an administrative slip, because it is the first thing a struggling builder quietly stops paying.

• Any payment plan in writing — the terms, the balance, and evidence you have adhered to it.

One thing worth knowing before you are surprised by it: the ATO can disclose business tax debts to credit reporting bureaus where the debt is at least $100,000, is more than 90 days overdue, and the business is not effectively engaging with them. A disclosed debt lands on your credit file and every lender sees it. A debt on a payment plan you are actually meeting is treated very differently from one you have gone quiet on — so if there is an issue, having the plan documented is worth more than hoping it does not come up.

Project and contract layer

• Current WIP schedule, refreshed monthly, with forecast margin per job.

• Job cost reports for live projects, showing costs to date, cost to complete and forecast margin.

• Retention register: amount, contract, release trigger, date, owner.

• Variations register, split into approved and unapproved, with an owner against each.

• Contract pipeline — secured work with values, stages and expected start dates, kept separate from tendered work that has not been awarded. Do not blend the two; an assessor who finds tendered work presented as secured will discount everything else you have given them.

Cash flow

• Rolling 13-week cash flow forecast, updated weekly.

• Twelve-month projection where the facility term calls for it, with the assumptions written down beside it.

Compliance and corporate

• Builder's licence — current, correct class, and the nominee arrangement documented if the licence sits with someone other than the director.

• Insurances: public liability, contract works, professional indemnity where relevant, and workers compensation.

• Home warranty or domestic building insurance eligibility — your current approved limits under the relevant state scheme, and the date they were last reviewed.

• ASIC company extract, current. Trust deed if you operate through one.

• Corporate structure diagram — one page, showing entities, ownership and who trades.

• Accountant's letter on trading continuity if you have restructured in the last two years.

If the request is for a specific bond or project facility

• Executed contract or letter of award

• Programme

• Payment schedule and claim cycle

• Principal details and their payment history with you, if you have one

That is a long list, and it should be. But look at where it comes from: the project layer, the cash flow and the management accounts all fall out of a properly set-up monthly reporting pack. The statutory financials come from your accountant. The ATO section is four printouts. The compliance section changes once a year.

The builders who get funded are not the ones who assemble this in a panic while a contract sits unsigned. They are the ones for whom producing it is simply Tuesday.

What is this worth?

The cost of not being bank-ready is rarely a refusal. It is a smaller facility, a higher rate, more security taken, or a six-week delay that costs you the contract.

On a $10M builder, a facility priced two points higher on a $1M exposure is $20,000 a year for nothing. A job lost to a four-week bonding delay is a whole margin. And the version of this that hurts most is the one nobody counts: the contract you did not tender for because you already knew the answer.

Our value calculator puts a rough number on what your current position is costing across margin, variations and cash — it takes about two minutes.

Frequently asked questions

What do banks look at when lending to a construction company?

Beyond the standard checks — licence, trading history, lodged BAS returns, contract pipeline — lenders focus on whether the business can fund the gap between costs and progress claims without them. In practice that means your work-in-progress position, net tangible assets, current ratio and a rolling cash flow forecast. Profitability matters less than the ability to absorb one bad job.

What is a WIP schedule and why do lenders want it?

A work-in-progress schedule compares revenue earned on each live job against amounts claimed, showing whether you are over-claimed or under-claimed. Lenders use it to test whether your balance sheet reflects reality, because an over-claimed position means cash in the account that belongs to future work. Being able to produce one on request is itself a credibility signal.

How much net tangible assets does a builder need?

It depends on your state and your turnover. Queensland's QBCC Minimum Financial Requirements set a maximum revenue for each level of net tangible assets and require a current ratio of at least 1:1; Victoria and New South Wales run separate tests through their domestic building insurance and home warranty schemes. The common principle is that turnover capacity is capped by balance-sheet strength, so check the specific threshold that applies to your licence and scheme.

What is the difference between a bank guarantee and a surety bond?

Both give a principal the same contractual security. A bank guarantee consumes your bank facility limits and often ties up cash, so every bond issued reduces what is available for working capital. A surety bond is issued by an insurer against a separate facility, leaving bank limits intact. For builders constrained by bonding capacity rather than by demand, that difference sets how many contracts you can run at once.

How long does it take to get finances bank-ready?

If monthly reporting already produces WIP, forecast margin and a rolling cash flow, you are effectively ready now. If it does not, allow roughly one to two reporting cycles to set up the chart of accounts, tracking and cost-to-complete discipline, plus whatever time it takes to clean up director loans and retention classification. The setup is the work; keeping it current is not.

Will a lender want personal guarantees?

Commonly, yes, particularly below a certain scale or trading history. The useful question is not whether you can avoid one but what reduces it over time — a stronger net tangible asset position, a demonstrable reporting track record, and a facility structured so bonding does not compete with working capital. Where a guarantee is in play you will also be asked for your own statement of assets and liabilities, including any guarantees you have already given elsewhere.

Will an ATO debt stop a builder getting finance?

Not automatically, but an undisclosed or unmanaged one usually will. Provide the Integrated Client Account statement, the BAS lodgement history and any payment plan in writing. The ATO can disclose business tax debts to credit reporting bureaus where the debt is at least $100,000, is more than 90 days overdue, and the business is not effectively engaging — at which point every lender sees it anyway. A documented plan you are meeting reads very differently from silence.

How recent do management accounts need to be?

Generally within about 60 days, and rarely more than a quarter old. They should carry prior-year comparatives, tie to a trial balance at the same date, and reconcile to both the bank and the lodged BAS. Assessors treat agreement between those documents as evidence the business is being monitored; a discrepancy between management accounts and BAS tends to become the whole conversation.

Why does unpaid superannuation matter so much?

Because it is read as a solvency signal rather than an administrative oversight. Superannuation is typically one of the first obligations a struggling builder quietly defers, so an outstanding superannuation guarantee charge tells an assessor something about cash position that the accounts may not. Lodged and paid, on time, is the expectation.

Find out where you'd stand before someone else decides

Book a free 30-minute strategy session. Bring your live job list and your last management pack, and we will tell you what a credit assessor would make of it — including a straight "you're already bank-ready" if that is the answer. Or read how we run construction cash flow forecasting, or call 1300 886 347.