Business Loans

Construction Line of Credit for Construction Businesses

Jul 07, 2022 • 6 min read
construction business
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      Despite challenges like labor and supply chain issues, the U.S. construction market is booming. In fact, analysts predict North American construction output to grow 32% by 2030. Construction business owners can capitalize on these opportunities while navigating challenges by having a smart financing plan in place. Using a line of credit for construction businesses, contractors, and builders creates a financial safety net at all times. 

      What Is a Line of Credit and How Is It Used by Businesses in the Construction Industry?

      A business line of credit helps construction-related industries have ongoing access to capital. It’s similar to a credit card in that you have access to a credit line and only pay interest on the amount of money you borrow. Once you repay your balance, you can continually borrow from the line of credit for the rest of its term.

      Having a line of credit on hand comes with a lot of benefits for construction-related businesses. It helps companies manage cash flow during periods of large expenses, including insurance premiums, licenses and permits, raw materials, and payroll.

      Some of the benefits of a business line of credit include:

      • Quick access to cash
      • Improved cash flow
      • Option for unsecured line of credit

      A line of credit for builders, construction companies, and general contractors allows small businesses to manage multiple projects at one time. Use a business line of credit calculator to figure out how payments work at different credit line amounts. 

      Line of Credit for Contractors 

      Contractors are especially susceptible to cash flow issues, especially while waiting on customers to pay invoices on time and purchasing materials to start a new job. And when managing larger projects with employees or subcontractors, there’s even more capital required to cover payroll costs.

      In order to stay liquid, a line of credit for contractors helps even out inconsistent income. A line of credit can also help you grow your business by funding the upfront costs of new projects as demand for your services grows. 

      When To Use an LOC vs. When Not to for Your Construction Business 

      Choosing between a business loan vs. line of credit can be challenging. Here’s what to consider as you make your decision.

      FeaturesBusiness Line of CreditBusiness Loan
      Funding Amount$1,000 to $500,000$5,000 to $2 million
      Funding Time1 to 2 weeksAs little as 24 hours
      Loan Term1 to 2 years1 to 5 years
      Access to FundsOngoingOne-time lump sum

      The right choice for your business depends on all of these factors, from the amount of working capital you need to whether you want ongoing access or just a one-time payment. 

      What Does It Take To Get a Line of Credit for Your Construction Business?

      Each lender has its own criteria for approving construction companies for a line of credit. It’s certainly possible to get a business line of credit with bad credit, but you’ll need to be prepared to pay a higher interest rate and potentially get a lower credit line amount.

      If you’re looking for a business line of credit no credit check, consider secured lines. This uses some type of collateral to back the loan. Business assets like equipment, heavy machinery, or real estate could be used.

      Lenders also look at your review. It’s hard to qualify for a business line of credit with no revenue. At Lendio, our partners generally require at least $50,000 in annual revenue. You’ll also need to be in business for 6 months or longer. 

      Apply for Line of Credit for Your Construction Biz

      If you’re in a place where you’re turning down projects because of cash flow issues, it may be time to consider financing options. A healthy construction business that strategically uses a line of credit can set itself up for strong growth. 

      Apply for a business line of credit with Lendio.


      How does a line of credit work for builders?

      A business line of credit for builders is similar to a credit card. You draw on the account (up to the limit) and receive funds that can be used for just about anything: raw materials, payroll, equipment, insurance premiums, permit fees, office leases, and more. As you receive invoice payments, you can pay off the line of credit balance, along with whatever interest has accrued. The credit line is replenished and you can borrow again as needed. 

      Is a construction loan the same as a line of credit? 

      No, loans and lines of credit are two very different types of financing for construction businesses. Loans typically come with larger financing amounts, but you only receive funds one time. That means it’s good for a major investment or to start a large project, but not for ongoing cash flow needs.

      With a line of credit, you have access to funds whenever you need them. Credit line limits are usually smaller than loans, but you can keep borrowing money as you repay your balance. 

      Why would a construction company need a line of credit?

      A construction company can use a line of credit for a number of different purposes, such as:

      • Purchasing materials
      • Hiring more employees
      • Purchasing equipment
      • Cover other overhead costs

      Is it hard to get approved for a line of credit?

      Lenders consider three primary factors when evaluating a construction industry line of credit. Here’s what they’ll look for:

      • Time in business: Currently, most lenders want borrowing companies to have been in business for at least 6 months
      • Revenue: Lenders vary but most will be looking for construction businesses that can show gross revenue of at least $50,000 per year
      • Credit score: Currently, lenders in the Lendio network require a personal credit score of at least a 560

      Disclaimer: The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter. 

      About the author
      Lauren Ward

      Lauren Ward is a personal finance and tech writer with a passion to help consumers make smart financial decisions. Her work has appeared in a variety of publications, including Time and MSN. When she's not writing, she loves gardening and playing board games with her family.

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