Construction Retention Release Finance Explained

What is construction retention finance?

Retention release finance is a short-term facility that lets a construction business borrow against retentions before they are paid. The government describes a retention as a percentage of the contract value, typically 3% to 5%, held back during the project and for a period after it. Half is usually released at completion and the other half after the defects liability period, which typically runs 12 to 24 months (gov.uk late payments consultation, 2025).

A provider lends part of the confirmed retention balance, and the business repays when the retention is released. How much a provider will lend, and what it charges, varies and is not widely published.

Why retentions cause cash flow problems

A contractor still has to pay for labour and materials while part of every payment is held back. On a contract with a small profit margin, the retention can be as large as the profit itself.

If a retention is paid late, the business has to choose between chasing it through dispute resolution, writing it off, or covering the gap from its own cash. A business with little cash in reserve may need outside finance to keep paying wages and buying materials for the next job.

This may change. The government introduced the Commercial Payments Bill in May 2026. It would ban the withholding of retention payments under construction contracts, and the government says it will consult further on when that would start (gov.uk Commercial Payments Bill overview). Retentions already held under existing contracts still matter until they are paid.

Which lenders offer retention finance in the UK?

Retention finance is a niche product. It may be offered by specialist lenders, by some invoice finance and asset-based lending providers, and sometimes by banks as part of a wider credit facility. Whether a provider will help, and on what terms, depends on the contract, the business holding the retention and your own trading history. Check each provider's own website for what it offers. FundBiz is not a lender and does not arrange finance.

Where the requirement is really whole-book invoice discounting against your wider debtor ledger rather than a specific retention balance, that is invoice finance, which our sister site MarketInvoice covers. This guide covers a defined retention release or bridging need.

Rates, fees and typical structures

Retention finance usually costs more than standard invoice finance, because the money is not due yet and may be reduced if defects are found. Charges often include a monthly fee and an interest-style charge on the amount you have borrowed, and sometimes an arrangement fee. Some providers set part of the charge as a margin above the Bank of England base rate, which is 3.75% as of December 2025 (Bank of England). Ask whether each charge is worked out on the amount you have borrowed or on the whole facility, because that makes a big difference. Providers may charge less where the business holding the retention is financially strong, because the risk is lower.

Eligibility requirements

Providers usually want a limited company or LLP, filed accounts, and written evidence of the retention balance from the main contractor or employer, such as a signed final account or a certificate from the contract administrator. Requirements on how long you have traded differ between providers, so ask each one.

The business holding the retention matters as much as your own credit record, because it is the one that will pay. Providers check its finances. If it is a public body or a large, financially strong contractor, the risk is usually seen as lower than with a small private developer. A business with CCJs or HMRC arrears may still find a provider, but should expect to pay more and borrow less. If a recent decline is the trigger, the construction late-payment guide sets out the alternatives.

Step by step

1. Compile a full schedule of current retention balances, including contract name, main contractor or employer, contract value, amount withheld and expected release date.
2. Gather your last two years of filed accounts plus recent management accounts showing current trading position.
3. Obtain copies of the relevant contract sections confirming retention terms and any practical completion certificates already issued.
4. Ask any provider or finance company what credit checks it will run before it runs them.
5. Get a written cost illustration from any provider showing every charge and the total you would pay, before signing a facility agreement.
6. Draw funds against verified retention balances as needed and repay when the retention is released by the main contractor or employer.

Frequently asked questions

Can a limited company or LLP access retention release finance?

Yes. Lenders prefer a limited company, LLP or established partnership because they take a legal assignment of the retention debt, which is cleaner to execute with an incorporated entity. FundBiz is not a lender and does not match enquiries to lenders. Our enquiry form is for limited companies, LLPs and partnerships with four or more partners.

What happens if the main contractor becomes insolvent before releasing the retention?

This is the primary credit risk in retention finance. If the main contractor enters administration, the retention becomes an unsecured claim in the insolvency and recovery is uncertain. Lenders price this into their advance rates and credit-check the debtor before agreeing a facility. Depending on the facility terms, the borrower may still carry some residual liability.

How long does it take to receive funds after applying?

It depends on the provider and on how complete your paperwork is. Straightforward cases, with clear accounts and a financially strong contractor holding the retention, are usually quicker. Cases with HMRC arrears, CCJs or a weaker contractor holding the retention usually take longer. Ask each provider for its usual timescale before you apply.

Does taking retention finance affect my business credit score?

The provider will usually run a credit search on the business, which credit reference agencies record. If the provider takes security, such as a charge over company assets, that charge is normally registered at Companies House. A facility repaid on time should not harm your credit file. If you approach several providers, ask each one how it will search your credit file before you apply, so several searches don't build up.

Is retention finance regulated by the FCA?

Business lending to limited companies and LLPs is not subject to FCA consumer credit regulation, so most retention facilities fall outside FCA oversight. FCA-authorised lenders may apply their conduct standards voluntarily, and the Lending Standards Board's Standards of Lending Practice for Business Customers covers some providers. Always review the facility agreement carefully before signing.

Release the cash held in your retentions

Tell us your structure, your retention balances and the main contractors holding them. It's free and there's no obligation.

Check your options →

This is general information, not financial or legal advice.