The usual loan for construction materials is a business line of credit: draw when the supplier invoice comes due, repay when the pay app clears. A term loan fits a one-time bulk buy. For a framing contractor with a $210,000 lumber package due before the first billing, the line carries materials until the GC pays.
That framing contractor is the case this guide works through. It's a 22-person company doing about $2.6 million a year, mostly wood-frame multifamily. It just signed a $640,000 framing subcontract on a four-story building. The lumber yard will deliver the package in two drops, but it wants payment on net-30 terms and the company's trade limit is $120,000. The GC pays pay apps about 45 days after approval and holds 10% retainage. The job is good. The company just can't float $210,000 of lumber and six weeks of payroll at the same time.
What are the options for a loan for construction materials?
There are five realistic ways to pay for materials before the job pays you. Most contractors use two or three of them together.
| Option | How it works | Fits | Through Sagamore? |
|---|---|---|---|
| Supplier trade credit | Supplier lets you pay in 30 to 60 days | Every job, up to your trade limit | No, but ask your supplier first |
| Line of credit | Draw for materials, repay from the pay app | Recurring material buys across jobs | Yes, $5K to $500K |
| Term loan | Lump sum, fixed payments over 6 to 60 months | A one-time bulk or price-locked purchase | Yes, $10K to $2M |
| Stored-materials billing | Bill for materials delivered but not yet installed | Contracts that allow it | No, it's a billing term |
| Factoring on approved pay apps | Advance against billed work | Shortening the wait after you bill | Yes, $10K to $5M |
Purchase-order financing is sometimes pitched to contractors for this, but it's built for resellers shipping finished goods, not for subs installing materials on someone else's project. A line of credit or a term loan does the same job more simply.
How much do you actually need to borrow for materials?
Less than the full package, if you plan the timing. For the framing contractor:
- Lumber package: $210,000, delivered in two drops of $105,000 (weeks 1 and 4)
- Supplier terms: net-30, trade limit $120,000
- Labor: $26,000 a week for 10 weeks
- Pay app 1: billed end of week 4, paid around week 11
- Contract: $640,000, billed in three pay apps
Trade credit helps less than it looks. Net-30 terms push each lumber payment back a month, but both drops come due by week 8, before any pay app has paid. Add ten weeks of labor, and by week 11, when the first payment arrives, the job has used about $470,000 of cash.
If the company keeps $150,000 of operating cash for the job, it needs roughly $320,000 of financing at the peak, just before that first payment. A line in that range, drawn as the lumber invoices come due and paid down as each pay app clears, fits the job. A term loan for the same amount would leave the company paying on money it no longer needs after week 15.
Should you bill for stored materials?
If your contract allows it, yes. Many AIA-style contracts let you bill for materials delivered to the site, or stored off-site with proof of insurance and title, before they're installed. Billing the second lumber drop on pay app 1 can pull $105,000 of payment forward by a month. Check the contract language and what documentation the owner's lender requires before counting on it.
When does a term loan make more sense than a line?
When the purchase isn't tied to one job's billing cycle. Two common cases:
Buying ahead of a price increase. A roofing contractor expects shingle prices to rise and has three months of signed reroofs. Buying $90,000 of material now locks the price. The savings, compared with the loan cost, is the whole decision. If the price increase is smaller than what the loan costs over the months you carry it, don't do it.
Stocking a yard. A fence or site-utility contractor that keeps common materials on hand to win quick-turn work is building a standing inventory, not funding a single job. A term loan repaid over 12 to 24 months matches that better than a line that never comes down.
Our guide to a line of credit vs. a term loan covers the trade-offs in general.
How do joint checks and lien waivers affect materials financing?
Suppliers with lien rights protect themselves in two ways, and both affect your lender.
Joint check agreements. On larger packages, a supplier may ask the GC to issue payment as a joint check to you and the supplier. That money never fully reaches your account, so it can't repay your line directly. Tell your lender if a job has one.
Lien waivers. Your GC wants proof your supplier was paid before releasing the next payment. If you draw on a line to pay the supplier, get the supplier's waiver promptly so the next pay app isn't held up. A delayed waiver delays the payment that repays the draw.
What do lenders look for on a materials-driven request?
Sagamore's lending partners require a 600+ credit score, at least one year in business, and at least $400,000 in annual revenue. Beyond that, a materials request reads well when you show:
- The signed contract or subcontract
- The supplier quote or invoice and its payment terms
- 3 to 6 months of business bank statements
- An AR aging and a backlog or WIP schedule
- Your current trade limits with major suppliers
What lenders want to see is that the materials are for signed work and that a known payment will repay them. A request to buy materials for work you hope to win reads very differently.
What are the mistakes to avoid?
Borrowing the whole package on day one. Draw as invoices come due, not when the order is placed.
Ignoring retainage. On the framing job, $64,000 of the contract sits in retainage until closeout. That money can't repay a materials draw.
Funding materials with daily-debit advances. Fast money with daily withdrawals squeezes the payroll the job also needs. A line costs far less to carry for six weeks.
Letting supplier accounts age. A supplier that's paid late cuts your trade limit, and trade credit is the cheapest money you have.
How does materials financing fit with the rest?
Materials are the front end of a job's cash gap. Approved pay apps are the back end, and invoice factoring for construction companies can shorten that side. A standing line of credit for contractors handles both materials and payroll across jobs. For the full picture, including equipment, see our guide to construction contractor financing, or our construction financing page for every product Sagamore places for contractors.
Sagamore is a broker, not a lender. If you've signed work that needs more material than your trade limits cover, start an application. The first review is a soft credit pull, and line of credit decisions typically come back within 24 hours.
