Subcontractor Financing

What is subcontractor financing?

Subcontractor financing covers the funding options that help electrical, plumbing, HVAC, concrete, roofing, and other specialty subs manage cash flow while they wait to get paid by general contractors. A general contractor might invoice the owner or developer directly. A sub usually doesn’t. Instead, you submit pay applications or invoices to the GC, and the GC pays on its own schedule. That can mean net-30, net-60, or even net-90 from the date you file the pay application. The delay is what creates the squeeze. You pay your crew weekly, buy materials on delivery, and keep covering overhead, all while the GC’s check sits somewhere in the pipeline. Financing bridges that stretch. For the broader picture, see contractor cash flow problems.

Why subcontractors face unique cash flow pressure

Subcontractors sit inside a payment chain. The owner pays the GC, and the GC pays the sub. Every step adds time. You might finish the work in week one, submit a pay application in week two, then wait 60 to 90 days for the money to land. Your crew still expects pay every Friday. Suppliers still want payment when the materials hit the job site. Insurance, bonding, and overhead don’t pause either. You’ve done the work and you have a valid claim to the cash. It just hasn’t arrived yet. None of this means you’re managing the business badly. It’s how construction is wired, and seeing it clearly helps you plan around it. For more on construction invoice payment delays, see our dedicated guide.

Common funding options for subcontractors

Contractor working capital gives you short-term funds for payroll, materials, or mobilization while a pay application is pending. It’s often a one-time advance. Subs reach for it when they know the payment is coming but need cash today. Accounts receivable financing, also called invoice factoring, turns what the GC owes you into cash right now. A lender advances a portion of the invoice, often 70 to 90 percent, and you repay once the GC pays. This works best when the GC has solid credit and pays on a predictable schedule. A contractor line of credit gives you revolving access for gaps that keep coming back. If you run several projects with staggered payment dates, you can draw as needed. And construction equipment financing fits tool, vehicle, and equipment purchases. For material-specific needs, see contractor material purchase financing.

When does each option make sense?

Working capital suits a single gap. One payroll period, or one material order, while a pay application sits waiting for approval. It can also be faster to get than a line of credit. Invoice factoring suits the moment you hold clear invoices or pay applications from creditworthy GCs and need cash quickly. The factor looks at the GC’s credit, so your relationship with that GC matters. A line of credit suits gaps that recur, like multiple projects, staggered draws, or seasonal swings. You draw when you need it and repay when payments come in. Equipment financing is for machinery or vehicles, not day-to-day operating cash. The closer the product matches your actual pattern, the better it works. For payroll-specific gaps, see contractor payroll funding.

How payment terms from general contractors affect subs

GC payment terms are all over the map. Some pay within 30 days of approval. Others stretch to 60 or 90. Retainage adds another layer, since the GC typically holds 5 to 10 percent until the project wraps, which pushes your final payment out even further. Know the GC’s payment cycle before you bid. If a GC pays net-90 and you’re running a 15-person crew, you’ll need funding to carry 12 weeks or more of payroll before the first check shows up. Contractor working capital or a contractor line of credit can cover that stretch. For retainage-specific pressure, see contractor retainage cash flow.

What lenders look at for subcontractor financing

Lenders usually start with your revenue history, looking for steady work and steady payment from GCs. Bank activity and average deposits tell them how cash actually moves through the business. Time in business counts too, and many products want to see at least six months. For invoice factoring, the GC’s credit is front and center, because the factor is really lending against the GC’s obligation to pay you. Some projects require bonding and licensing, and lenders weigh whether you can actually perform the work. Your project mix shifts the risk as well, whether that’s residential versus commercial or public versus private. Subs with a track record of finished work and paid applications tend to have more options on the table. For preparation guidance, see how to prepare for contractor financing approval.

Subcontractor vs general contractor financing: key differences

General contractors often invoice owners or developers directly. Subs invoice the GC. That one difference ripples through everything. With invoice factoring, the factor evaluates whoever owes you, which is the GC. Payment timing shifts too, since you wait on the GC, who may be waiting on the owner. Bonding shows up more often for subs on public and large commercial work, and contractor bonding and financing explains how the two interact. Project structure matters as well. Fixed price, time and materials, and cost-plus all bill differently. Subs on T&M may bill more often, while subs on a lump sum wait for milestones. Knowing where you sit in the chain helps you pick the right product.

Pay application vs invoice: when can you factor?

Subs usually submit pay applications, which is progress billing, rather than final invoices. Factors can advance against approved pay applications, because once the GC signs off on the amount, the obligation is clear. Unapproved applications are a different story and may not qualify, since the factor needs to know the GC has actually committed to pay. Retainage, the portion held back until completion, often can’t be factored until the project is done. The gap between “work completed” and “approved for payment” is the thing to watch, and understanding it helps you time your factoring. For more on contractor draw schedule cash flow, see our guide.

Documentation that helps subs qualify for financing

Pay applications and GC approvals show that the work is finished and the payment is committed. Contract copies or purchase orders spell out scope and payment terms. Bank statements with steady deposits from GCs prove your payment history. Lien waivers may be part of the process if they’re required, so make sure you understand what you’re signing. Some projects also call for bonding and licensing documentation. Subs who keep clean records and can show GCs paying on time usually have more options. For contractor bonding and financing, see our guide.

Real-world scenarios for subcontractor financing

Take an electrical sub on a commercial build-out. The contractor finishes $80,000 of work and submits a pay application, but the GC pays net-60 and there are 12 electricians to pay every week. Working capital covers payroll until that payment lands. Or a plumbing sub on a multi-family project who holds invoices from a national GC with strong credit. Invoice factoring advances 80 percent within days, and the sub puts the cash toward materials on the next phase. Picture an HVAC sub juggling three jobs at once, with draws staggered across 8 weeks. A line of credit gives that contractor room to move, drawing when payroll hits and repaying when the draws come in. Then there’s a concrete sub facing a material-timing crunch, needing $50,000 in cement and aggregate for a foundation pour. The supplier wants payment on delivery, but the GC pays net-90, so material purchase financing covers the gap. Every one of these comes down to the same thing. The work is done, the payment is coming, but the cash is needed now.

How to choose the right product for your sub business

Start with how often you actually need the money, since a one-time gap and a recurring one point to different products. Think about who owes you, because the GC’s credit drives whether factoring works. Look at your project mix, where steady work supports a line of credit and sporadic work leans toward working capital. And weigh the paperwork, since some of these products ask for far less than a traditional bank loan. All funding options gives you the overview. When you’re ready to see what fits, you can see what funding options may be available for your subcontracting business.

Frequently asked questions

What is subcontractor financing?

Subcontractor financing is funding that helps electrical, plumbing, HVAC, and specialty subs cover payroll and materials while waiting for payment from general contractors. GCs often pay net-60 or net-90; subs need cash during that wait.

Why do subcontractors need financing?

Subs complete work and submit pay applications or invoices to the GC. Payment may not arrive for 30–90 days. Labor must be paid weekly; materials are often paid on delivery. The timing gap creates cash flow pressure.

What funding options do subcontractors use?

Working capital for short-term gaps, invoice factoring or accounts receivable financing to convert GC invoices to cash, and lines of credit for recurring needs. Equipment financing fits tool and vehicle purchases.

How does subcontractor financing differ from general contractor financing?

Subs typically invoice the GC rather than the end client. Payment flows through the GC. Invoice factoring for subs often focuses on GC receivables. The products are similar; the structure of who owes you differs.

Can subcontractors finance invoices from general contractors?

Yes. Accounts receivable financing and invoice factoring can advance a portion of amounts owed by GCs. The factor or lender assesses the GC's credit. Terms vary by product and GC payment history.