Every contractor knows the feeling: three draws into a job, the general contractor is slow on payment, payroll lands Friday, and a lender you have never heard of calls promising low interest, no strings, and $80,000 by tomorrow morning. No collateral. No hard credit pull. Just a signature.
Debt-relief groups say construction companies and contractors are among the businesses most often trapped by cash advances—the most expensive form of small business credit. These high-interest tools are designed around the exact pain points that they face: progress billing, retainage, and 60-day receivables make cash flow lumpy. These financiers also know something else: you are running crews, quoting jobs, and chasing inspections. You do not have 40 hours to compare lenders, a similar number for creating individual applications, and another week to wait for an answer. They have found a way to monetize the one thing everyone in the trades lacks: time.
Before you sign anything, listen for these five alarm bells.
When repayment terms are anything but clear
Predatory offers hide behind various terms. If the repayment structure isn’t obvious, it’s because they have tied it up with different fees, structures, and timings.
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Take “factor rates” as an example.
They sound small but can translate into triple-digit annual costs. A 1.4 factor rate on a six-month advance can exceed 100% APR.
Effective rates on merchant cash advances run as high as 350%.
Daily repayments that ignore how tradespeople actually get paid
Companies that sell merchant cash advances are in essence buying your future revenue, and they want to be repaid daily. While these instruments can help growing businesses, they hurt when payments are delayed. These advances pull money from your account every banking day—whether or not the GC has paid the draw. Repayment that ignores how they actually get paid is a structural trap. You should always consider aligning the loan term with either the asset, the job, or the drawdown schedule. Some financiers also rely on repeated calls, countdown clocks, and offers that expire in 24 hours. That manufactured urgency exists to stop you from reading the contract or comparing terms. Legitimate providers give you time to run the numbers past your accountant. The oldest alarm bell in lending works best on people with no time, which is to say, tradespeople.
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Anyone asking for fees before you get the money
If a lender charges a “processing fee” or “insurance deposit” before money is disbursed, it is a red flag. Advance-fee scams are growing and getting especially sophisticated at targeting small businesses. Some fees from lenders are common, but they are generally taken out of the money that hits your account—not paid upfront.
The biggest red flag: skipping the court entirely
A confession of judgment lets a funder obtain a court judgment without notice or trial.
They can freeze your accounts before you know a filing exists.
A UCC blanket lien can let a funder tell your general contractors and customers to redirect your receivables at the source. Any contract containing these terms deserves a lawyer’s eyes first. Horror stories exist where courts are completely skipped and businesses lose entire jobs’ worth of revenue with little recourse.
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Their commissions can top 20% of the total loan size.
Brokers are incentivized to put you into the most expensive debt possible. That is the uncomfortable part: the person across the table may not have your best interest in mind.
Technology is finally pointing the other way, providing options that scan the entire market and find the best solution for your situation. The answer to these alarm bells is not avoiding speed. It is demanding speed and transparency at the same time. The caller promising that amount by morning is counting on you being too busy to check. Now you know what to look for.
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