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Subcontractor Business Loans: Working Capital for Subcontractors

Funding For Subcontracting Companies

A contractor is someone that is hired to take a set of plans and turn them into a building. They orchestrate the comings and goings of the ordered materials, the workers, coordinate an ever-changing schedule, inspect the work done, handle a lot of the paperwork (payroll, material bills), and many other duties. They also direct and manage the subcontractors and make sure they are taking care of there responsibilities. These would include, plumbers, electricians, tillers, dry-wallers, roofers, and foundation crew; whoever and whatever is needed it is the responsibility of the general contractor to make sure everything is getting done on time and adequately with accordance to plans.

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Individuals that typically enter into this field, usually start off as subcontractors such as carpenters and decide at a certain point that they would like to work for themselves and run their own companies and assume the management role. Though in a large construction company, general contractors are viewed as a company all on its own, and an individual project manager will take on the day-to-day responsibilities of the given job. The project manager does not have to have hands-on building experience, but they do have business training. The obligations of the general contractor begin to consist of a computer and a cell phone rather than a hammer and a saw. So, typically, only one or two jobs are going at a time, while a construction company would need several larger jobs to pay its overhead; it operates as a small business. They also have to be on-site regularly in general, inspecting the work as it is completed to provide answers and resolve issues that may occur.

Nevertheless, one of the most critical components of being a subcontractor or general contractor is understanding the industry and staying aware of what is working and what is not. Despite the uncertainty, the construction industry continues towards sustainable growth with minor setbacks and challenges that for the most can be overcome. Thus there have been three significant challenges contractors should be concerned. With the rising cost of materials (over the past 12 years the material cost has grown by nearly 30 percent), it has forced workers to adopt technology and make more with less. The increase of BIM and artificial intelligence, and modular construction to name a few have made it possible for developers and general contractors today to build with incredible efficiency. Another challenge is the ongoing labor shortage; it has reached a historic low with unemployment in the construction industry sitting at 5.3 percent while hourly wages continue to grow and outpace inflation.  Giving contractors the opportunity to increase productivity and embrace technology and forces them to rethink how the industry operates. By streamlining workflows, communications, document transfers between architects, engineers, and project managers it can help stakeholders do much more with fewer workers and quicker.

Additionally, what should be considered are political factors. It may not be the most obvious concern to have— though it is one that has much power to significantly alter regulations, labor policy, taxes, and countless other aspects of business, giving them a considerable impact on future construction trends. Furthermore, even with the promise of a $1 trillion investment in infrastructure by the new administration that offers a significant boost to the entire industry—subcontractors should also be aware of generation gaps and project complexity. The lack of skilled labor is partly due to the divide in age and thus skill; for which has been a significant issue for the last few years as the industry is trying to bring in new talent as demand continues to grow. We can see this with the addition of 36,000 jobs that were added in January (2017) and 170,000 in the last year. Thus what can be readily apparent differences in the younger generation compared to the older is a better understanding of new technologies and adopting them early. Nevertheless, the younger generation lacks the skills of having on-the-job experience that veteran workers have needed to deliver complicated projects quickly and with high precision.

Therefore, general contractors that take these qualities into account while preparing projects will find themselves ahead of the game. Lastly, new building designs are becoming increasingly sophisticated. The structures now are more visually dramatic and energy efficient, but creating these buildings requires highly skilled merchants. Meanwhile, this creates an exponentially more complicated task for the general contractor such as budgeting and managing project timelines. Resulting in subcontractors and general contractors spending, even more, time managing projects than in the past. Still, with all the pros and cons, technology, laws, and a new era of workers contracting is becoming more efficient and advanced and with an awareness of the changing times, can be a rewarding and profitable career.

Types of Subcontractor Business Loans

Subcontractors tend to find themselves needing cash for working capital purposes – especially to help fund payroll. But other subcontractor financing uses include purchasing equipment, purchasing property, refinancing business debt, consolidating high-interest loans and other operational uses. Below we’ll take a look at the different types of subcontractor financing available.

Bank Subcontractor Loans

Bank terms loans are the premiere type of financing for subcontractors looking to acquire a loan for their company. Subcontractor bank term loans can be used for a wide variety of uses and are the most affordable type of financing available for subcontractors. General uses include working capital, capital expenditures, equipment purchases, and general operational expenses.

Rates 5-15%
Terms 1-30 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs


Subcontractor Line of Credit

A bank line of credit is a form of preapproved subcontractor financing that allows the small business to access financing whenever need it. Generally, a subcontractor line of credit is secured by the contractor’s accounts receivable using their business-to-business invoices as collateral.

Rates 0% for 12 months
Terms 1-2 years
Funding Amounts $10,000-$500,000
Collateral Not be Required
Fees Medium costs


Subcontractor SBA Loans

SBA lending is a great type of financing for subcontractors seeking true bank-rate financing, but have been unsuccessful obtaining it. The Small Business Administration uses this program to entice lenders to provide credit facilities to small businesses by agreeing to cover a large portion of the subcontractor’s lender’s losses should the subcontractor default on their loan.

Rates 5-8%
Terms 3-25 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs


Unsecured Line of Credit

Unsecured financing is a great type of financing for business owner’s looking to leverage their good credit. If you have a credit score above 680, there is potential to get business financing up to $250,000 without having to pledge business assets. Additionally, unsecured lines of credit can be used for startup purposes.

Rates 0% APR first 12 months
Terms 1-2 years
Funding Amounts $50,000-$500,000
Collateral Not required
Fees Medium costs


Subcontractor Equipment Leasing

Rather than purchasing equipment outright, another option to obtain equipment is subcontractor equipment leasing. By leasing equipment, rather than purchasing it, the contractor doesn’t need to pay the full-price of the equipment, upfront, nor will it be stuck with outdated equipment, as it can be returned at the end of the leasing period.

Rates 8-20%
Terms 1-10 years
Funding Amounts $10,000-$5,000,000
Collateral Required
Fees Medium costs


Subcontractor Factoring

Factoring involves selling a contractor’s unpaid business-to-business invoices to a third party (factoring company) to get paid on work that has been completed, but have customers that haven’t yet paid the invoices. By factoring your subcontracting company’s invoices, you can access much needed working capital at an affordable price, without having to wait 90 plus days.

Rates 0.5-4.0
Terms 1-2 years
Funding Amounts $100,000-$5,000,000
Collateral Required
Fees Medium costs


Accounts Receivable Financing

A/R financing for subcontractors is somewhat similar to factoring, in that the subcontractor is leveraging their unpaid invoices to obtain financing. The main difference between A/R financing and factoring is that the invoices aren’t sold using A/R financing. Instead, the accounts receivable is used as collateral for a line of credit.

Rates 0.5-2.5%
Terms 1-3 years
Funding Amounts $100,000-$10,000,000
Collateral Required
Fees Medium costs


Subcontractor Cash Advance

Subcontractor cash advances are a way for business owners to access fast cash should they need it for working capital or emergency uses. Subcontractor cash advances aren’t loans but are instead the sale of future business revenue to a third party funding company. In many ways a cash advance is similar to factoring, the main difference is that factoring involves the sale of invoices, and cash advances involve the sale of future bank revenue.

Factor rates 1.10 – 1.50
Terms 3-24 months
Funding Amounts $5,000-$2,000,000
Collateral Not required
Fees Low to High costs


Subcontractors have plenty of options to fund their business. The key is to find the right type of loan that will allow them to cover all their financing needs at the lowest borrowing cost available. If you are a subcontractor seeking business financing, and need help securing the best possible loan, please reach-out to our funding specialists, and they’ll help you navigate the process.

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About the author
Domonique Cox

Domonique is a Minnesota native that earned her bachelors from The University of Arizona with a degree in English and Film Studies. Though books and writing are not her only interest, you can find her engaging in nutritional sciences, environmentalism, vegan cuisine, filmmaking, old school dancing, tennis, running, sound engineering, and enjoying satirical dark comedies or listening to the poetic lyrics of Bob Dylan. She is now based in Los Angeles as a content writer for GUD Capital where she spends her spare time honing her writing and directing skills. 

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