The Situation
An HVAC contractor in Florida had a payroll problem: their biggest customer was a hospital system paying on net-60 terms, while the crew needed to be paid every two weeks. The math worked over a 60-day cycle, but a single large job with a longer staging period created a 3–4 week gap between when payroll was due and when invoices cleared.
The gap wasn't a cash flow failure — it was a structural timing mismatch. The invoices were solid, the customers were creditworthy, and the contractor had a healthy balance sheet overall. But traditional lenders saw "net-60 receivables" and flagged the application as high-risk.
Why the Bank Wasn't Going to Work
The bank's concern with contractor receivables isn't the credit quality — it's the volatility. Net-60 invoices from hospital systems are actually some of the most reliable paper in commercial lending. But the underwriting model sees "contractor + large receivables + seasonal revenue" and runs a higher risk weight.
When the bank underwriter ran the numbers, they saw a cash flow spike in Q4 when large jobs closed and a gap in Q1 when those same jobs were still in progress. The bank read that as volatility. The actual pattern was completely predictable — but it didn't fit the underwriting box.
Bank terms for contractor LOCs in this range also typically require accounts receivable assignment, which meant the hospital system would need to be notified and consent to the assignment. Hospital procurement departments don't move on those requests quickly.
How We Structured It
The right structure here was a revolving business line of credit — not a term loan. A term loan would have required the contractor to draw the full amount upfront and then figure out what to do with the leftover cash. A revolving LOC let them draw what they needed, when they needed it, and repay on their own timeline as invoices cleared.
The underwriting key: we documented the specific contract and its payment terms as the primary collateral, and matched to a lender that evaluates contractor receivables on a contract-by-contract basis rather than as an aggregate pool. The net-60 hospital system contract was scored as a single credit facility, not as a risky receivable type.
Revolver structure meant the contractor drew twice in the first 6 months — $45K in month 2 to cover a payroll cycle that hit early, and $30K in month 5 during a slower billing period. Each draw was available within 24 hours of request. Repayments came back as invoices cleared, restoring the available credit line automatically.
No reapplication required between draws. No penalty for paying early. The LOC is still active and available as of the date of this case study.
The Outcome
The contractor drew the LOC twice in the first 6 months — each time to cover a payroll cycle during a billing gap — and repaid in full both times. The LOC is still available as a permanent safety net. The owner has not missed a payroll since.
- Drew twice in 6 months, repaid both times from cleared invoices
- 24-hour availability on each draw request
- Revolver structure — no reapplication, available immediately
- Won two additional hospital contracts since establishing the LOC, using it as working capital to hire ahead of the contract start dates
The hospital system contract has since been renegotiated to net-45, which reduced the gap the LOC covers — but the availability remains as the contractor has scaled to three additional healthcare facility clients.