Line of Credit for Construction

One of the most capital intensive industries is the construction industry. Whether you are a homebuilder, renovation contractor, or do specialty construction; access to money for your business is paramount. Funds that are always available to contractors in the form of a line of credit is the best way to prepare and pay for the unexpected. Our job here at Line of Credit Depot is to pair your construction business with the correct bank line of credit facility.

By Matthew Elling
Co-Founder and Consultant at Line of Credit Depot
Updated on February 10, 2021
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"One of the most capital intensive industries is the construction industry. "

Whether you are a homebuilder, renovation contractor, or do specialty construction; access to money for your business is paramount. Funds that are always available to contractors in the form of a line of credit is the best way to prepare and pay for the unexpected. Our job here at Line of Credit Depot is to pair your construction business with the correct bank line of credit facility.

Not all financing is created equal, which means that line of credit programs and applicant requirements differ from bank to bank. So getting paired with the correct bank can be tricky. That’s why we help lots of construction companies find and activate true revolving bank lines of credit. For example, let's say that you tried to apply for bank financing at your business bank and were declined. This doesn’t mean that every bank in the US will decline you. We work with ‘business friendly’ banks that approve all types of construction companies, no matter now big or small!

Expenses, of which are generally not fully known until a project begins, can include; wages for labor, equipment breakdowns and improvements, materials, sub contractors, vendors, etc. Projecting and planning for all of these expenses should be taken into account when providing estimates to potential clients. Depending on how the job was estimated, you could be running into cash flow issues as you work towards completing a project, or multiple projects simultaneously. If there are cash flow issues than the construction payment chain becomes compromised, leading to material, insurance and/or labor not being paid for.

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"A line of credit can help a contractor by supplementing the client deposit to pay for mobilization costs."

The expense of starting any client project requires money. In a perfect world the client would pay for a large portion of the project upfront, but this is usually not the case. In order to win bids and be aggressive, construction companies sometimes ask for lower than needed mobilization funds and/or customer friendly payment schedules. This can be a risky move, especially if the construction company doesn’t have many means to self finance certain stages of the project.

In order to get approved for a line of credit, your construction company needs to have shown to be profitable on the last filed business tax return. This will show the bank that your business has the means to afford payments for the line after money is drawn. If your business showed net losses on the last tax return, that doesn’t necessarily mean that you are declined. There are certain expenses (non-taxables) on a return that can be ‘added back’ to the net profit amount. This will generally remove a loss and bring the business back to a qualifying requirement. Depending on the bank’s underwriting guidelines, some or all of the following can be ‘added back’ to your net profit; owner compensation, equipment or property depreciation, and interest payments.

Even if your construction company has current debt financing in the form of MCA (merchant cash advance) or equipment financing, a line of credit can be activated. It’s important to know that a great way to refinance your more expensive business debt is to refinance with a lower rate line of credit. So let's say the business has high balances with high interest rate credit cards. A line of credit can be used to pay these cards down, so you can stop paying interest on past purchases and also so you can keep the card credit available for other purchases.

All different sectors of the construction industry are available to apply for a business line of credit. There is no owner credit check required at time of application.

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