Definition
A percentage of a construction payment held until project completion.
Why it matters
Retainage is usually not eligible for factoring.
Where it shows up in a deal
Retainage appears on construction progress billings - on an AIA G702 or its equivalent - as a percentage withheld by the owner or general contractor until substantial completion. A funder carves it out of the eligible amount entirely and advances only against the portion payable on ordinary terms.
What it affects
- Carving it out can cut the cash yield of a progress billing well below the headline advance rate.
- Release depends on completion, punch list and sometimes lien waivers, so timing is genuinely uncertain.
- Retainage accumulates across a project and can become the largest single balance on your ledger.
- Some funders will finance released retainage separately once the release conditions are met.
A worked example
A $400,000 progress billing with 10% retainage leaves $360,000 payable now; $40,000 is withheld and excluded. An 80% advance on the eligible $360,000 funds $288,000 - 72% of the amount billed.
The common mistake
Related terms
- Eligible ReceivablesInvoices that meet a funder's criteria for advancing.
- Advance RateThe percentage of an invoice's value a funder pays upfront.
- Borrowing BaseThe maximum amount available under an asset-based line, calculated from eligible collateral.
- Proof of DeliveryDocumentation proving goods or services were delivered.
Questions about how retainage affects your facility?
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