Contractor Bridging Loan Malaysia 2026

Construction contractors face a unique cash flow challenge: you incur costs now but get paid 60-90+ days later. Bridging loans help you finance projects while waiting for progress payments.

The Contractor Cash Flow Challenge

Typical Construction Payment Cycle

Meanwhile, You Must Pay:

• Workers (weekly/bi-weekly)
• Material suppliers (30 days or COD)
• Equipment rental (monthly)
• Subcontractors (30-45 days)
• Overheads (ongoing)

Types of Contractor Financing

1. Progress Claim Financing (Factoring)

Turn your approved progress claims into immediate cash:

How It Works:

1. Submit progress claim to client
2. Get certification/approval
3. Present certified claim to financier
4. Receive 60-80% of claim value immediately
5. Balance (minus fees) when client pays

Best For:

• Contractors with certified claims pending payment
• Projects with creditworthy end-clients (government, developers)
• Regular cash flow smoothing

2. Contract-Based Financing

Loans based on awarded contracts, not just claims:

How It Works:

1. Show awarded contract/Letter of Award (LOA)
2. Lender assesses project and client creditworthiness
3. Receive working capital facility
4. Drawdown as needed during project
5. Repay as progress payments arrive

3. Retention Money Financing

Don't wait 12-24 months for retention release:

What's Retention:

• 5-10% withheld from each progress payment
• Released after Defect Liability Period (12-24 months)
• Can represent significant locked capital

Retention Financing:

• Receive 70-90% of retention value now
• Repay when retention is released
• Fees: 1-3% flat or monthly interest

4. Subcontractor Financing

Specialized financing for subcontractors:

Challenge: Subcontractors often wait even longer for payment (60-90 days after main contractor gets paid)

Solutions:

5. Performance Bond Facilities

Contractors need performance bonds/guarantees:

Bank Guarantee Facility:

• 5-10% of contract value as bond
• Requires security (property, FD) OR
• Available under CGC guarantee schemes

Insurance Bond Alternative:

• Issued by insurers instead of banks
• Often easier to obtain
• May cost slightly more but less security required

6. GGSM2 for Contractors

Government guarantee makes bank loans easier:

GGSM2 Construction Facility:

• Guarantee: Up to 80% government guarantee
• Amount: Up to RM20 million
• Use: Working capital, equipment, project financing
• Benefit: Reduces collateral requirements significantly

Financing by Contractor Type

G1-G3 Contractors (Small)

G4-G5 Contractors (Medium)

G6-G7 Contractors (Large)

Industry-Specific Considerations

Government Projects (JKR, etc.)

Advantages:

• Creditworthy client (sovereign credit)
• Payment relatively predictable
• Progress claim financing easier to obtain

Challenges:

• Longer payment cycles (90-120 days)
• Bureaucratic certification process
• Budget allocation delays

Private Developer Projects

Advantages:

• Potentially faster payment
• Direct negotiation possible

Challenges:

• Developer creditworthiness varies
• Risk of developer cash flow issues
• May require personal guarantees

Subcontract Work

Advantages:

• Often faster certification (from main contractor)
• Can negotiate better terms with established mains

Challenges:

• Main contractor's payment cycle adds delay
• Dependent on main contractor's financing
• Less direct relationship with end-client

Required Documentation

Project-Specific Documents

Common Challenges & Solutions

Challenge: Long Payment Delays

Solutions:

• Build financing cost into tender pricing (1-3% of contract)
• Use factoring for approved claims
• Negotiate better payment terms upfront
• Diversify client base (mix of fast and slow payers)

Challenge: Retention Lock-Up

Solutions:

• Finance retention money (accept cost as business expense)
• Negotiate reduced retention (2.5% vs 5%)
• Request retention release in stages
• Build retention cost into pricing

Challenge: Client Credit Risk

Solutions:

• Check client creditworthiness before bidding
• Request advance payment (10-20% on LOA)
• Use non-recourse factoring (transfers risk)
• Insure receivables

Challenge: Insufficient Security for Bonds

Solutions:

• Use insurance bonds instead of bank guarantees
• Apply under CGC guarantee schemes
• Build banking relationship for unsecured facilities
• Partner with larger contractor for joint ventures

Cost of Contractor Financing

Typical Financing Costs

Example: Financing a RM1M Project

Contract Value:        RM1,000,000
Progress Payments:     5 x RM200,000

Financing Strategy:
- Working capital line: RM300,000 (30% of contract)
- Interest (8% p.a. x 6 months): RM12,000

- Factoring 3 claims x RM200K x 2%: RM12,000

- Retention (5%): RM50,000
- Retention financing (12 months x 1.5%): RM9,000

Total Financing Cost: ~RM33,000 (3.3% of contract)

Tips for Better Contractor Financing

Frequently Asked Questions

Get Your Projects Financed

Don't let cash flow gaps stop you from taking on profitable projects. The right financing structure can help you grow.