Subcontractor

A subcontractor contracts with the general contractor (not the owner) to perform a defined scope — electrical, mechanical, concrete, drywall — and typically buys materials from suppliers on trade credit. Subs are the natural customer base of construction materials suppliers, and they are structurally the riskiest tier: thinly capitalized relative to their revenue, paid slowly from above (progress payments minus retainage, often on pay-when-paid terms), yet obligated to fund payroll weekly and materials on net-30. The tier absorbs the payment chain's timing mismatch, which is why subcontractor failure rates lead the industry.

Underwriting a sub means underwriting its jobs as much as its balance sheet. Key questions: what projects is it on, who are the GCs and owners, is the work bonded, how much retainage is accumulating, and is it growing faster than its working capital can support? Overextension is the classic sub failure mode — a $10M sub that wins $25M of work will run out of cash succeeding, because each new job consumes payroll and materials months before it pays. A sub's aging with you also reads differently by job: slow on one project usually means a dispute or slow owner upstream; slow on all projects means the business itself is failing.

Credit tools for the sub tier are correspondingly job-based: preliminary notices on every project to preserve lien and bond rights, job accounts to map exposure to security, joint check agreements on large or shaky engagements, and personal guarantees from owners of closely held subs. The good news in the tier's structure is that a sub's failure does not extinguish a well-protected supplier's claim — lien and bond rights reach the project, above the insolvent customer.