Does retention AR from bonded construction contracts count toward the ABL borrowing base at term sheet?
Retention (retainage) AR from bonded construction contracts is usually excluded from the Eligible Receivable borrowing base at term sheet. Bank of America flags retention and bonding collection risk; CFMA lists bonding-company priority liens and unbilled retainage exclusions. Don Clarke marks progress billings typically ineligible unless negotiated; filed exhibits may carve Eligible Retainage Accounts under a Borrowing Base cap.
Last updated: September 12, 2026
What is retention (retainage) AR in an ABL borrowing-base context?
Retention, also called retainage, is a contractually withheld slice of progress payments held until completion, inspection, and lien clearance. Until release, those receivables are not finished, freely collectible AR — which is why ABL Eligible Receivable definitions frequently strip retainage and bonded contractor balances before the advance rate is applied.
Why lenders exclude retention AR and bonded contractor receivables at term sheet
Bank of America Business Capital explains that "in the case of a construction company, lenders may not feel comfortable lending against accounts receivable that could be difficult to collect due to progress billings, retention or the presence of bonding requirements." CFMA forum archives state that "banks also typically avoid loaning against bonded receivables (the bonding company has a priority lien), and almost always exclude unbilled retainage."
ABL Advisor states that "most working capital providers do not lend to the construction industry because of the nature of accounts receivable activity (i.e. progress billings)." LegalClarity lists "Notes receivable and progress billings: These don’t represent completed, collectible sales" among ineligible assets for drawing power.
Don Clarke Enterprises says "Bill-and-hold, consignment, and progress billings. Typically ineligible unless specifically negotiated" on the BBC ineligible line, and the companion ineligible-calculations post places "progress-billing" in the categorical ineligibles removed before aging.
When Eligible Retainage Accounts appear in a filed credit agreement
Exclusion is the default; inclusion is a negotiated carve under the credit agreement. Don Clarke lists progress billings as typically ineligible unless specifically negotiated. Installed Building Products Amendment No. 4 (SEC EX-10.1) defines "Eligible Retainage Accounts" alongside Eligible Progress Billings and states that Eligible Retainage Accounts and Eligible Progress Billings shall not be classified as ineligible under the progress-billings / retainage clause to the extent they would not, in the aggregate, increase the Borrowing Base by more than 15%.
OCC advance rates on eligible AR
The OCC Comptroller's Handbook: Asset-Based Lending says "Common advance rates range from 70 percent to 85 percent of eligible accounts receivable."
| Claim | Listed | URL |
|---|---|---|
| Construction AR hard to collect due to progress billings / retention / bonding | in the case of a construction company, lenders may not feel comfortable lending against accounts receivable that could be difficult to collect due to progress billings, retention or the presence of bonding requirements | Bank of America Business Capital ABL |
| Bonded receivables priority lien + unbilled retainage excluded | banks also typically avoid loaning against bonded receivables (the bonding company has a priority lien), and almost always exclude unbilled retainage | CFMA progress billings AR forum |
| Most working-capital providers avoid construction AR / progress billings | most working capital providers do not lend to the construction industry because of the nature of accounts receivable activity (i.e. progress billings) | ABL Advisor construction sector |
| Progress billings typically ineligible unless negotiated on BBC | Bill-and-hold, consignment, and progress billings. Typically ineligible unless specifically negotiated | Don Clarke BBC line-by-line |
| progress-billing among categorical ineligibles before aging | progress-billing | Don Clarke ineligible cascade |
| Progress billings listed as ineligible receivables for drawing power | Notes receivable and progress billings: These don’t represent completed, collectible sales | LegalClarity drawing power |
| OCC common AR advance rates (eligible receivables only) | Common advance rates range from 70 percent to 85 percent of eligible accounts receivable | OCC ABL handbook PDF |
| Filed Eligible Retainage Accounts carve (IBP Amendment No. 4) ≤15% of Borrowing Base | Eligible Retainage Accounts and Eligible Progress Billings shall not be classified as ineligible under this clause (t) to the extent that the aggregate amount of all such Accounts under this clause (t) and the preceding clauses (e) and (l) would not, in the aggregate, increase the aggregate amount of the Borrowing Base by more than 15% | SEC IBP Amendment No. 4 EX-10.1 |
Frequently asked questions
Does retention AR from bonded construction contracts count toward the ABL borrowing base at term sheet?
Retention (retainage) AR from bonded construction contracts is usually excluded from the Eligible Receivable borrowing base at term sheet. Bank of America flags retention and bonding collection risk; CFMA lists bonding-company priority liens and unbilled retainage exclusions. Don Clarke marks progress billings typically ineligible unless negotiated; filed exhibits may carve Eligible Retainage Accounts under a Borrowing Base cap.
Why do bonding requirements and retainage make contractor AR ineligible for ABL facilities?
CFMA forum archives state that banks typically avoid loaning against bonded receivables because the bonding company has a priority lien, and almost always exclude unbilled retainage. Bank of America Business Capital notes lenders may not feel comfortable lending against AR that could be difficult to collect due to progress billings, retention, or bonding requirements.
Can a credit agreement carve Eligible Retainage Accounts into the borrowing base?
Yes, only when the credit agreement specifically negotiates a carve. Don Clarke lists bill-and-hold, consignment, and progress billings as typically ineligible unless specifically negotiated. Installed Building Products' filed Amendment No. 4 defines Eligible Retainage Accounts and allows them only to the extent they would not increase the Borrowing Base by more than 15%.
What advance rates apply once receivables are eligible after retention and bonding exclusions?
The OCC Comptroller's Handbook on asset-based lending states that common advance rates range from 70 percent to 85 percent of eligible accounts receivable. That range applies to eligible AR after ineligibles such as retainage and bonded receivables are stripped — not as an OCC statement that retention or bonding themselves are named ineligible categories.
Do trade sources list retainage and bonded receivables as categorical borrowing-base exclusions?
Yes. CFMA states that banks almost always exclude unbilled retainage and typically avoid bonded receivables due to the bonding company's priority lien. ABL Advisor notes most working-capital providers do not lend against construction progress-billing AR, and LegalClarity lists progress billings among assets that don't represent completed, collectible sales.
Related
- Before binding an ABL revolver, which AR lines are ineligible and which get carved back at term sheet?
- Do progress billings count toward the borrowing base before an ABL revolver binds?
- Why is construction AR harder to finance than manufacturing AR at term sheet?
- What is a UCC filing and why do ABL lenders require lien searches before closing?
- What is a work-in-process schedule in an ABL borrowing-base certificate for construction contractors?
- Does government AR count toward the borrowing base before an ABL revolver binds?