Redrun Business Funding, a small-business funding broker in Caldwell, Idaho, compares three ways a subcontractor can cover payroll while waiting on a general contractor's payment: a line of credit, a working capital lump sum and a merchant cash advance (not a loan). It covers how each works, when each fits, ways to shrink the gap first, and the records partners review.
Why the gap exists
Most subcontract agreements pay after the general contractor is paid by the owner, and often only after the work is inspected and billed. Some hold back a share of each payment as retainage until the job is finished. Meanwhile, wages, payroll taxes and materials are due on fixed dates.
In Canyon County this is the common shape of construction work. Of 1,678 construction employers in 2023, 1,303 were specialty trade contractors, with 8,363 paid employees between them (County Business Patterns 2023). Those firms are the ones paying crews ahead of the money.
A hypothetical framing crew
Illustration only: a Caldwell, ID framing subcontractor with a crew of four bills every two weeks. Wages and payroll taxes come to a fixed amount each pay date. The general contractor typically pays 30 to 45 days after a bill is approved, and one job holds back retainage. With two jobs running, the firm regularly has two or three payrolls out before the matching draws land. Nothing is wrong with the business; the timing is simply against it.
First route: a revolving line
A business line of credit fits this pattern when the gap repeats. The firm draws on payday, pays the line down when the draw clears, and pays interest only on what is out. Owners ask whether a business line of credit can be used for payroll; in most agreements, wages are a permitted business use.
The catch: a line needs a partner willing to set a limit, and partners look for a history of draws actually arriving. A brand-new firm may find that harder than a firm with a year or two of statements.
Option 2: a working capital lump sum
For one defined gap, such as a large new contract with heavy start-up costs, working capital financing gives a lump sum repaid on a short schedule. It is simpler than a line but less flexible: once it is spent, a new gap needs a new request. Check how often payments are collected; daily debits can be awkward for a firm whose income arrives in lumps.
Third route: selling receipts through an advance
A merchant cash advance is not a loan. A funder buys part of future receipts and collects them as a share of deposits or a fixed remittance. For a subcontractor paid by check or transfer in large, irregular amounts, a fixed daily remittance can be a poor match. If an advance is offered, compare the total dollars you would hand over with the cost of a line or a lump sum.
Narrowing the wait before any borrowing
- Bill as soon as each stage is complete, and follow up on approval dates.
- Ask whether the general contractor can pay on a shorter cycle for your trade.
- Negotiate supplier terms that match your draw dates.
- Track retainage separately so it is not mistaken for working cash.
- Price new equipment purchases separately, rather than paying for them out of payroll cash.
Machines in particular belong in their own deal. The heavy equipment payment calculator helps price one before it competes with wages for cash.
What a partner reads in a trade crew's payroll request
- Bank statements showing payroll dates and when draws arrive.
- Current contracts and the general contractors behind them.
- An accounts receivable list with expected payment dates.
- Payroll records and any payroll tax balances.
- Existing debts and advances.
Further Redrun pieces sit on the Redrun blog.
By Redrun Business Funding ยท Updated
