Quick Overview
The reasons why subcontractors are choosing early pay over business loans and other forms of traditional financing are straightforward: qualification is easier, payment is faster (days vs. weeks or months), and it doesn’t create debt.
Contractor financial stress can be hard for outsiders to understand. From retainage to liens and upfront costs, the cards may seem stacked against you from the start. Still, many subcontractors can and do succeed. The trick is usually to find a way to bridge the gap between completing work and getting paid. Traditional financing options like loans tend to be the go-to for situations like this, but they’re not always ideal for subcontractors. In this guide, we’ll explore why this is the case and why subcontractors are choosing early pay, also known as Quick Pay, instead.
Traditional Financing Options Aren’t Always a Match for Subcontractors
Before we break down why subcontractors are choosing early pay, let’s take a quick look at some of the problems associated with traditional construction contractor financing options.
High Borrowing Costs
Fees and interest can make subcontractor financing expensive, particularly if your credit profile is less established or your debt level is already high. In fact, 36 percent of construction professionals say high interest rates or financing costs are one of their biggest concerns, according to the latest Associated General Contractors of America (AGC) Construction Outlook survey.
- Application Fees: Some lenders charge a fee to cover costs associated with basic processing and credit checks. The cost is typically between $25 and $500.
- Origination Fee: If approved, some lenders charge a fee to cover underwriting, document prep, and funding costs. This is usually between one and three percent of the loan amount with a bank, or up to eight percent with an online lender.
- Closing Costs: Some lenders also charge a fee for third-party asset evaluations or document preparation, but this is more common with asset-based financing options such as real estate or equipment financing.
- Interest: Presently, the median fixed rate on new term loans at urban banks is 6.72 percent, per the Federal Reserve Bank of Kansas City, although bank rates can reach up to around 11 percent. Meanwhile, annual percentage rates for online term loans range from 14 to 99 percent. Expect higher rates if you choose short-term financing or don’t have strong credit yet.
- Additional Fees: You may also see late payment fees, prepayment penalties, and non-sufficient funds fees depending on your agreement and whether you follow the terms outlined in the contract.
Lengthy Approval Processes
Banks may request tax returns, financial statements, cash flow projections, collateral records, and personal guarantees. This review can take weeks or months. Online lenders often have a speedier process, though it comes at a premium.
Low Approval Rates
Across industries, only 42 percent of small business financing applicants receive the full amount requested, while 22 percent receive nothing, according to the Federal Reserve Small Business Credit Survey. These are broad figures that cover everything from equipment loans to merchant cash advances (MCAs). When you isolate business loans, just 37 percent are fully approved, and 28 percent walk away with no cash at all.
Construction Contract Complexities
Retainage, disputed change orders, back charges, and pay-if-paid clauses can make the timing and final value of your receivables less certain. This uncertainty often reduces how much a lender is willing to advance.
Lien and Priority Concerns
Mechanic’s liens can help protect your right to payment, but lien deadlines, waivers, and competing claims differ by state and project. Lenders may need to determine who has priority over the receivable or project proceeds before approving funding.
How Early Payment Programs Work for Contractors
Even if all construction payment laws are followed, you may still be left with long waits for payment. Early payment programs help you shorten them. They’re usually arranged by a general contractor (GC) to give eligible subcontractors a faster payment option. Although each program is different, the process is typically similar to the outline below.
Step 1: Program Enrollment
The general contractor establishes the early payment program and identifies eligible participants. At Viva Capital, general contractors can participate at no cost, so it’s a win for everyone involved.
Step 2: Project Selection
Some programs apply broadly across a contractor’s accounts payable system. However, Viva’s program is project-specific on the contractor’s side. The GC sets each one up individually, then selects which subcontractors qualify for early payment on the project.
Step 3: Payment Request
Subcontractor participation is optional. Those who wish to participate simply request early payment after completing qualifying work or reaching a milestone. Nothing is paid by the subcontractor upfront. Instead, a small fee is held from the subcontractor’s remaining payment when the project owner pays the invoice.
Step 4: Contractor Approval
The GC confirms the work, approves the request, and determines the payment amount. At Viva, this is all managed in our secure, cloud-based portal, so approval can be provided in just a few clicks. From there, we request a few documents from the subcontractor to aid in processing.
Step 5: Funding and Settlement
Viva pays the subcontractor right away. Most payments arrive within one or two business days, though same-day funding is available. The account is later settled under the Quick Pay agreement when the project client pays. There’s nothing for the subcontractor or GC to pay back.
Comparing Early Pay to Business Loans
Early pay and business loans solve different funding problems. Early pay accelerates money already earned on a project. A loan provides new capital that your business repays over time.
| Early Pay | Business Loan | |
| Funding Basis | Funding is tied to completed work and an approved payment request. | Approval is based primarily on your business credit, financial history, cash flow, and ability to repay. |
| Speed | Payment may arrive within days after approval. Viva typically funds by wire transfer or check within a few business days. | Timing varies by lender and loan type. Financial review and underwriting can extend the process. |
| Debt | There’s no debt accumulation. You receive an existing payment early without creating a conventional business loan. | The loan adds debt to your business and creates an ongoing repayment obligation. |
| Cost Structure | You pay a fee when you choose to accelerate a payment. Viva offers competitive rates and lets you use Quick Pay only when needed. | You generally pay interest and applicable fees over the loan term. |
| Repayment | You don’t make monthly loan payments. The account is settled under the early payment agreement. | Most term loans require monthly principal and interest payments from business cash flow. |
| Best Use | Early pay can bridge the gap between completing work and receiving payment, helping you cover payroll, materials, and other project costs. | Loans can support longer-term needs such as equipment purchases, real estate, acquisitions, or planned expansion. |
Additional Benefits of Faster Payment Solutions
In addition to the differences highlighted above, early payments come with a multitude of benefits.
Improved Cash Flow Management
Earlier, predictable payments improve cash flow management by making it easier to coordinate incoming cash with payroll, supplier invoices, insurance, and equipment costs.
Greater Project Capacity
New projects often require upfront spending on labor, materials, permits, and mobilization. Accelerating payment from completed work can provide the working capital needed to begin another project or manage several jobs at once.
Flexible Funding Costs
Viva’s Quick Pay Program is optional. You can accelerate a payment when the financial benefit supports the fee, then follow standard payment terms when cash reserves are sufficient.
Stronger Workforce and Supplier Relationships
Reliable cash flow helps you pay crews and vendors on schedule. Consistent payment can improve supplier terms, support employee retention, and build the kind of trust that makes it easier to secure labor for upcoming projects. It’s a recurring theme in Quick Pay case studies that leads to stronger business growth.
Preserved Borrowing Capacity
Early pay doesn’t create conventional loan debt. You can keep existing credit available for longer-term investments, such as vehicles or equipment.
Reduced Administrative Work
Viva integrates payment requests and lien waiver processing into its portal, reducing paperwork and repeated payment inquiries.
See Why Subcontractors Are Choosing Early Pay for Yourself
If you’re a subcontractor interested in receiving early payments, you can advocate for Quick Pay by forwarding this article to the general contractors you work with or sharing their contact information with us. We’ll handle the follow-up.
If you’re a general contractor who wants to set up early payments for your subcontractors at no charge to your firm, connect with us.
