Most contractors carry $6,000 to $16,000 a month in fixed debt and still get approved
What a typical contractor's monthly debt load looks like:
| Expense | Monthly Range |
|---|---|
| Work truck payment(s) | $800–$2,500 |
| Equipment loans/leases | $500–$3,000 |
| Commercial auto insurance | $500–$1,500 |
| Workers comp (5–20% of payroll) | $1,500–$6,000 |
| Shop/yard rent | $1,500–$5,000 |
| Total fixed obligations | $6,000–$16,000+ |
Insurance premiums are up 43.7% over 5 years. Equipment prices up 30%+ since 2020. Parts and labor up 27.4%.
Most trades businesses carry significant fixed monthly obligations. Truck payments, equipment leases, insurance, workers comp. For a 5 to 10 employee contractor, the typical fixed debt service runs $6,000 to $15,000 per month before payroll. That's normal. The question isn't whether you have debt. It's whether your revenue can cover the new payment on top of what you already owe.
The MCA stacking trap:
About 38% of construction companies use merchant cash advances. MCA defaults surged 59% in 2024 to $2.22 billion industry-wide. Businesses carrying 3 to 7 stacked MCAs are often consuming 40 to 60% of gross revenue in daily debits. At that point, adding more debt makes the problem worse.
Most lenders allow additional funding once you've repaid at least 50% of an existing balance. That's the general stacking rule. But consolidation is often the smarter move. Replacing three MCAs at $800 per day combined ($17,600 per month) with a single term loan at $6,500 per month produces a 63% payment reduction. Consolidation needs to deliver at least a 20% payment reduction to justify the longer repayment period.
How lenders evaluate it (DSCR):
Debt Service Coverage Ratio is your net operating income divided by total monthly debt payments. SBA lenders want at least 1.25x. Most alternative lenders want monthly payments under 25 to 35% of gross revenue.
| Monthly Financials | Plumbing Co. (Strong) | GC (Stressed) |
|---|---|---|
| Gross revenue | $35,000 | $25,000 |
| Net margin (after COGS, labor) | $21,000 (60%) | $10,000 (40%) |
| Existing debt payments | $4,000 | $8,000 |
| Proposed new payment | $3,000 | $3,000 |
| DSCR | 3.0x (strong) | 0.91x (decline) |
The plumbing company qualifies easily. The GC needs to restructure existing debt before adding more. A DSCR below 1.0 means the business can't cover its obligations from operations.
What lenders check when you already carry debt:
- Payment history on existing obligations. On-time payments signal reliability even when the balance is high.
- Total debt-to-revenue ratio. Are all monthly payments combined under 25 to 35% of gross?
- Time remaining on existing debt. Three months left on a truck note is very different from three years.
- Revenue trend. Growing revenue plus existing debt is a strong signal. Declining revenue plus existing debt is a red flag.
- UCC filings. How many existing liens are recorded against the business.
Subordination is where lenders separate:
Subordination behind an existing equipment loan is the lender-by-lender decision that decides whether you get approved. Our broker network has direct relationships with lenders that subordinate cleanly when DSCR supports it, including those that consolidate the existing equipment note into the new loan to simplify the stack. Compare trades business loan options, or get the application moving.
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