What Matters to Lenders Before Financing a Project-Based Company
What Matters to Lenders Before Financing a Project-Based Company
Private equity interest in project-based businesses, such as contractors, fabricators, and specialty trades, has been building. A wave of baby boomer owners is approaching retirement, putting well-run electrical, mechanical, and industrial services businesses up for sale. At the same time, the buildout of AI infrastructure and data centers is driving sustained demand for the construction and engineering work needed to build and power them, and the roll-up playbook that sponsors have used successfully in categories like roofing, landscaping, and HVAC is increasingly being extended into larger, more complex project-based verticals.
For sponsors newer to the space, the underwriting logic that works for a recurring-revenue platform doesn’t always translate cleanly to a project-based company, whose revenue arrives in lumps, often tied to individual jobs that can run for a few months or a few years. Lenders tend to evaluate these businesses differently, and sponsors who walk into a process understanding that difference can save themselves time and headaches in the long run. In the following piece, we’ll walk through what tends to matter most to lenders when faced with financing a project-based business.
Bonding is Binary
Many project-based businesses, especially those serving government or infrastructure end markets, operate under surety bonding programs, which create indemnity obligations and contingent claims on company assets that lenders must underwrite around. Typically, a lender’s reaction to bonding can be quite binary — they’re either comfortable underwriting around it, or they are not — which is a single fact that determines if said lender belongs in a process involving that company at all.
For sponsors, the job is to present that exposure clearly and accurately: how much bonding capacity is actually in use versus simply available. Overstating usage, even accidentally, can make a healthy bonding picture look riskier than it is. Government work compounds the issue, since more government contracting generally means more bonding, and bonding claims can prime a lender’s claim on the receivables and contract proceeds tied to bonded jobs through the surety’s subrogation and indemnity rights, even where the lender otherwise holds a senior blanket lien.
Often, bonding exposure is a hurdle that can be solved through open, accurate communication and, at times, the implementation of guardrails when bidding on future projects.
Navigating Gain Fade
Gain fade is the diligence item that can be a surprising hurdle to sponsors. Most of these businesses use percentage-of-completion accounting and price their jobs to a target gross margin, but that number is an estimate at the time of bid, not a guarantee. As a project moves through its milestones, the realized margin can drift up or down from the original bid, and by the time the job closes out, it may land well above or well below plan.
Lenders want to see the pattern across a large sample of completed projects, not a single result: are jobs generally finishing at or above the bid margin, or is there a history of underpricing that only shows up after the fact? A business that can point to disciplined bidding and a favorable gain fade track record is in a fundamentally different conversation than one that can’t.
Governance around bidding can fix a bad gain fade history. Businesses that have struggled with underpriced projects can often turn things around with the same playbook: a formal approval hierarchy that requires larger bids to be reviewed and signed off by increasingly senior people as the dollar amount grows, up to the CEO for the largest jobs. That kind of control and additional guardrails gives lenders a concrete reason to trust that historical problems won’t repeat.
Backlog Quality vs. Quantity
Backlog quality, in some cases, matters more than backlog size. A large backlog number is only useful if a lender can trust that it converts to revenue. That means understanding what share of backlog is truly under contract versus loosely agreed, and what percentage has historically converted rather than getting canceled or pushed.
Additionally, concentration is the other half of the backlog conversation: lenders want to see a business spread across a reasonable number of projects, customers, and end markets rather than one or two outsized jobs carrying the year. A single very large contract, even a very profitable one, raises the question of what happens if it slips or a customer relationship changes.
Sponsors should also be ready to show that even when individual projects and customers roll off, as they naturally do in project-based work, the company keeps winning the next piece of work from that same relationship rather than rebuilding it from scratch.
That same logic extends to the type of work itself. Lenders like to see a base of recurring maintenance, repair, and replacement work layered in alongside new construction wherever possible, since that work tends to be steadier and more predictable, helping smooth out the underlying ebbs and flows that come with a backlog built solely on new project wins.
Regarding customer relationships, another data point lenders consider is whether or not the company works directly with end customers or as a subcontractor to a general contractor, and either way, how deep those relationships run. Is the connection to a key account owned by the whole organization, or does it live with one relationship manager whose possible departure would put the business at risk? The same question applies internally: how much work is performed in-house versus subcontracted out, and what happens to project economics and reliability if a key subcontractor falls through?
Pricing Risk, Passed or Kept
Contract structure shapes who bears pricing risk. Fixed-price contracts put the company on the hook if material or labor costs move against the initial estimate mid-project, while time-and-materials arrangements let costs pass through more directly.
Lenders generally prefer time-and-materials structures, or, where fixed pricing is unavoidable, appropriate contractual escalators, hedging programs, or purchasing mechanisms to manage raw material and inventory pricing risk throughout the life of the project. The underlying question is the same one that shows up throughout this list: is the company managing its own exposure, or is it counting on favorable conditions to hold through the life of a job?
From the Field: Two Deals, One Lesson
Configure worked with a sponsor acquiring an industrial services contractor that had spent years working within a specific size range before winning a single contract worth many multiples of anything it had completed in its history. The size of that win was a genuine growth story, and exciting for the sponsor, but it also concentrated the business around one customer and one industry, which is exactly the kind of shift lenders probe hardest.
On another deal, Configure worked with a company coming out of a stretch of negative gain fade, where aggressive bidding aimed at growing backlog had left a trail of underpriced projects. To assuage lenders concerned about future bidding discipline, Configure walked interested parties through the new management team and the approval hierarchy controls put in place to make sure it wouldn’t happen again.
Neither story is unusual. Project-based businesses go through growth spurts, concentration risk, and bidding missteps as a matter of course. What matters to a lender is whether the sponsor and management team can honestly name the risk, show the data, and explain what’s been done about it moving forward.
Working with an experienced partner can ease these pain points and bring to the process a consortium of lenders that are comfortable with bonding exposure and the gain fade risk inherent to percentage-of-completion accounting, as those two issues alone determine much of the eligible universe.
Additionally, an experienced partner knows and understands how to frame gain fade history, concentration, and governance changes so lenders see a business that understands its own risks rather than skeletons in the closet.
As more capital moves into project-based businesses, driven by generational ownership transitions, the AI and data center buildout, and the extension of proven services roll-up strategies into new verticals, that guidance is often the difference between a financing process that drags on for months and one that closes on schedule and works for everyone at the table.
About Configure
Configure Partners is a trusted strategic advisory partner to leading private capital managers across the middle market. The firm works with private equity sponsors, private credit lenders, and institutional capital providers to design and execute complex financings, recapitalizations, GP-led secondaries, and broader capital alignment strategies. Configure helps investors build resilient capital structures, strengthen platforms, execute balance sheet strategies, and drive long-term investment performance. The firm is known for its principal-minded, low-ego approach, disciplined execution, and deep market relationships. To learn more about Configure, visit www.configurepartners.com.
About Sam Vaughn
Sam joined Configure Partners in 2022 as an Analyst, then earned subsequent promotions to Associate in 2023 and Vice President in 2025. Before Configure, Sam was an Investment Banking Credit Analyst at Truist Securities, where he was responsible for underwriting credit products to new and existing Industrials and Services clients. Sam was named a 2026 Emerging Leader by the M&A Advisor.
Sam holds a master’s degree in Accounting from the University of West Florida and a bachelor’s degree in Finance from the University of Georgia. He is a FINRA General Securities Representative and holds the Series 7, 63 & 79 Licenses.