A Financing Alternative for Construction Subcontractors

Most construction subcontractors are having difficulty finding business financing. Many banks are shying away from the industry because of the financial problems caused by the real estate market implosion a number of years ago. Banks suffered when general contractors and subcontractors failed, and they don’t want to take on the risk again.

However, many construction subcontractors are doing reasonably well in this environment. They have solid clients, reliable contracts, and were smart enough to diversify their client base years ago and now work with both commercial clients and general contractors.

Many subcontractors also span the industry, working in cell tower construction and maintenance, paving, HVAC installation and repair, and other trades. However, even if your subcontracting business is doing well, getting business funding from conventional sources is still difficult.

Not every financial problem requires a conventional financing solution. Many subcontractors have simple cash flow problems that can be solved using specialized invoice financing.

The problem: slow-paying clients

Most construction subcontractors experience financial problems simply because they have tight cash flows. They work with commercial customers and GCs who take up to 60 days to pay invoices.

In the meantime, the subcontractor must pay employees and suppliers. This delay puts a serious dent in cash reserves, and few companies can afford to wait up to two months for payment. However, these companies would not have a problem if their construction clients paid invoices quickly – say, in a few days. You can solve this issue with construction subcontractor factoring.

The solution: finance receivables

Financing receivables can improve your cash flow and, if used correctly, eliminate cash shortages caused by slow-paying clients. Receivables financing works by partnering your company with a construction factoring company, who funds your invoices as soon as you complete the work. This solution provides you with immediate working capital to pay your employee and supplier expenses.

Most transaction are fairly simple and include two payments:

  1. You invoice your commercial client or GC for a completed project stage
  2. You finance the invoice and get a 70% (this amount varies) advance as a first installment
  3. After 30 to 60 days, your commercial client or GC pays
  4. The finance company rebates the remaining 30%, less a discount fee

The initial advance is often 70% of the gross value of the invoice. The remaining 30% is retained until your client pays in full and is used to cover any payment discrepancies. Initial advances can vary based on your work record and your client’s payment track record.

Can my company qualify?

Qualifying to finance your construction receivables is a lot easier, and simpler, than getting a conventional business loan. The first, and most important, requirement is that your commercial clients and general contractors have good commercial credit because your receivables (invoices) are the collateral for the transaction. Aside from that, your company should be well run, your invoices must be free of liens, and your company should not be bonded.

Why can’t my company be bonded?

Unfortunately, we cannot work with subcontractors who have a direct performance bond (a surety bond) for the project they wish to finance because the bonding company usually has a lien on the receivables, and factoring companies cannot purchase receivables encumbered by liens. However, we can work with subcontractors working for general contractors who have their own performance bond.


Factoring construction receivables has a number of benefits. The facility is relatively easy to get and is structured to grow with your company. You can usually finance as many invoices as you can generate, as long as they meet the funding company requirements – making receivables financing a perfect solution for growing subcontractors with cash flow shortages because of slow-paying clients.

Suggested resource: “How to select the best construction factoring company

Get more information

We are a leading construction factoring company and can provide you with competitive terms. For information, get an online quote or call (877) 300 3258.