When Contractors Become the Bank
Here is a question that has baffled Aaron Dearborn for years: why are the general contractor and the subcontractor the bank for the project? They are the ones doing the work, yet they are the ones financing it through delayed payments. The money structure in commercial construction is built around the owner, not the people swinging the hammers.
Aaron is the president of Amerail Systems, a hotel general contractor that renovates hotels across the country, running 25 to 40 projects a year at $2 to $9 million each. On this episode of Builders, Budgets and Beers, he sat down with Reece Barnes to unpack why contractors end up funding their own projects, how Amerail protects its subs by paying them early, and what younger contractors can do to break the cycle.
Here are the key takeaways.
Why do general contractors and subcontractors end up financing the project?
The payment structure forces it. On most commercial jobs you are lucky to get a deposit, and everything else is billed on progress. Run the timeline: you progress bill near the end of the month, then you get paid 30 days after that, and your subcontractor may not see money until 60 to 80 days after the project started. On a three to six month job, that means the people doing the work carry the financial burden the longest.
As Aaron puts it, the structure is very pro-owner versus pro the person doing the work. Owners, especially publicly traded companies and REITs, watch every penny and hold their cash as long as possible, often pointing to shareholder obligations. The longer they keep the money in their pocket, the more it earns for them.
There is no quick fix. Changing it would mean changing the mindset of the entire industry, and that happens one job and one relationship at a time.
Why does Amerail pay its subcontractors before getting paid?
Because the work depends on it. Amerail typically pays its subs before the receivables come in, even when that means fronting the cash. The logic is simple: the subs are the ones doing the work, and if they are not worrying about money, they can concentrate on the project, finish faster, and move on to the next one.
It has been the company’s approach for more than 40 years, and it is how Amerail keeps the subcontractors it values. When subs know they will be paid every two or four weeks like clockwork, they go above and beyond. The contracts still read paid-when-paid and retainage is still withheld until final payment, usually 5 to 10% released in stages, but the day-to-day cash keeps moving to the crews.
The tradeoff is real. The GC absorbs the financing burden and stays on the hook for liquidated damages and schedule. It is a double-edged sword, but Amerail chooses to wear that burden rather than pass the stress down to the trades.
How can contractors get better deposits and payment terms?
It starts in the sales process. If you do not ask for a deposit, you will not get one. Owners are not going to volunteer their cash, so the expectation has to be set before the contract is signed.
The tool that works is open communication. Most customers do not understand everything that goes into starting a project: the materials to purchase, everything that has to be on site on day one, the permits and planning before a single room is touched. When a contractor lays that out clearly, owners are often more willing to release some funds up front and then move to progress payments. At Amerail, deposits are framed around mobilization, making sure the subs get paid that first month.
Repeat relationships make the dance easier. Once a customer knows and trusts the contractor, they are far more willing to agree to deposit terms. Cracking the door with a new client is the hard part, and it calls for a delicate balance between not seeming like a pain and being clear about what the project actually requires.
Why does having fewer decision-makers make payment easier?
The more people involved, the worse it gets. Banks, investors, and multiple stakeholders each add friction and delay. Amerail’s niche in recent years has been hotel owners who own 10 to 50 properties, because that often means a single decision-maker, which is the key to getting billing approved and keeping cash moving to the subs.
Larger REITs, owning anywhere from 50 to 500 hotels, bring guaranteed volume and real purchasing power with the brands. But that scale comes at a price: more scrutiny, slower payment, and more of the project financed by the contractor. It is quantity over quality, and the contractor effectively bankrolls the work in exchange for the pipeline.
How does the hotel renovation business actually work?
It runs on franchise renewal cycles. Roughly 99% of hotels are franchises owned by individuals, investment groups, or REITs operating under brands like Marriott, Hilton, and IHG. When a franchise license comes up for renewal every 7 to 15 years, the brand requires the owner to renovate. Do good work, and you have a repeat client in about seven years.
Much of the negotiation happens with the brand, not just the owner. As a design-build firm, Amerail handles design, architecture, and interior design, then submits to the brand for approval. That approval stage is where the negotiation lives, often fighting for waivers to reduce scope. A current example is the industry-wide push to convert bathtubs to showers in select-service hotels like Hampton, Courtyard, and Holiday Inn, since business travelers prefer showers. At $5,000 to $7,000 per room across 100 to 200 rooms, the cost adds up fast, so Amerail negotiates the required scope down, sometimes from every room to a handful. It takes a month or two of back-and-forth, but it goes a long way with ownership.
Amerail’s pivot to a full general contractor came during Covid. With hotels crushed and time on their hands, the company injected capital, brought in technology, and hired ready talent, building the infrastructure first and then going after the work. That staged, build-it-first approach turned a downturn into guaranteed pipeline as travel rebounded, especially in markets like Wyoming that became stopping points on the way to destinations like Yellowstone.
What advice does Aaron give younger contractors?
Do not be too proud. Take advice, look at problems from every angle, and talk to older people in the industry who have already lived through what you are facing. The dollar amounts may differ, but the problems are usually the same. Admit when you are wrong, try things once, and if something does not work, find another way.
Take calculated risks. With the information available today, risk-taking can be far more measured. You can qualify a customer before you commit, checking whether they have had a bankruptcy and what they own, which makes it much easier to avoid the clients most likely to leave you holding the financing.
On getting in the room with the right people, Aaron points to LinkedIn, industry forums, and conferences. Many established leaders are happy to mentor because they can feel passed over as their careers progress. It comes down to timing, persistence, and showing up. In hotel renovation specifically, he names the Hunter Conference in Atlanta, ALIS in Los Angeles, HD Expo in Las Vegas, BDNY in New York, and the Lodging Conference, each geared toward a different slice of the industry.
The bottom line
Until the industry changes how money moves, general contractors and subcontractors will keep acting as the bank. The contractors who manage it best, like Amerail, do it through clear expectations set early, strong relationships that unlock better terms, a focus on customers with fewer decision-makers, and a willingness to protect the trades even when it means carrying the cash themselves.
Listen to the full episode
This conversation covered project financing, deposits and payment terms, the hotel renovation business, and hard-won advice for the next generation of contractors. Listen to the full episode of Builders, Budgets and Beers with Aaron Dearborn of Amerail Systems for the complete discussion, and check the show notes for links.
Builders, Budgets and Beers is the podcast for real conversations about money in the building industry. Adaptive is the AI-native project accounting platform built for construction, automating job costing, AP, billing, and compliance so cash moves faster and the numbers stay accurate without the manual work.