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Understanding Construction Lines of Credit: A Comprehensive Guide

Nov 13, 2023 • 10+ min read
construction business
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      Despite 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 construction line of credit?

      A business line of credit helps construction-related industries maintain 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 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.

      Secured vs. unsecured lines of credit.

      Secured and unsecured lines of credit constitute two primary categories of construction lines of credit.

      A secured line of credit involves collateral, such as equipment or real estate, which the lender can claim if the borrower defaults on the loan. This type of credit is typically larger, with lower interest rates due to the reduced risk for the lender.

      An unsecured line of credit doesn’t require collateral. However, they usually come with higher interest rates and require a strong credit history for approval, due to the higher risk posed to the lender. These options cater to different needs, and the choice between a secured or unsecured line of credit should be based on the borrower’s financial situation and risk tolerance.

      Line of credit options for startups.

      While it’s generally harder for young companies to qualify for financing, some lenders will offer a line of credit to businesses with a minimum time in business of at least six months if you meet the other eligibility criteria. Learn more about specific lines of credit available to startups here.

      Benefits of a construction line of credit.

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

      • Flexibility – Businesses don’t have to draw on the entire credit line if they don’t need it, unlike a traditional loan where the full amount is typically disbursed at once.
      • Easy access to funds – Borrowers can access funds quickly and easily when needed, without having to reapply for a loan every time.
      • Better cash flow management – A line of credit can help businesses stay afloat during lean times or when facing unexpected expenses.
      • Lower interest rates – Compared to other types of financing options, lines of credit often have lower interest rates, which can save businesses money in the long run.
      • Increased purchasing power – With a line of credit, businesses have more purchasing power and can take advantage of discounts.

      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.

      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.

      How can you use a construction line of credit?

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

      • Purchasing equipment – When old equipment breaks down or new projects demand more specific machinery, a line of credit can be used to purchase or lease needed equipment. This can help avoid project delays and lost productivity.
      • Buying materials – Construction projects require a lot of raw materials upfront. A line of credit allows for these materials to be purchased and costs managed until clients make their payments.
      • Managing payroll – During periods of heavy work, construction companies may need to employ more workers. A line of credit can be used to cover these additional payroll costs.
      • Expansion – When a company is looking to expand its operations—either by taking on more projects or increasing its physical footprint—a construction line of credit can provide the necessary funds.
      • Emergency expenses – In construction, unexpected costs are a given. Whether it’s damage that needs repairing, cost overruns, or abrupt changes in project scope, a line of credit can cover these unexpected expenses.
      • Marketing and advertising – To attract new clients and bid on larger projects, construction companies often need to invest in marketing and advertising. A line of credit can be used to finance these efforts.

      Requirements for a construction 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 six 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 600.

      Business loans vs. line of credit

      In the construction industry, understanding the distinct differences between traditional business loans and a line of credit can help determine which financing option is best suited for your individual business needs.

      FeaturesBusiness line of creditBusiness loan
      Funding amount$1,000 – $250,000*$5,000 – $2 million*
      Funding time1 – 2 days*As little as 24 hours*
      Loan term6 – 18 months*6 months – 10 years*
      Access to fundsOngoingOne-time lump sum

      How to apply for a line of credit for your construction business.

      Applying for a line of credit is similar to applying for any other type of financing. You’ll need to provide standard business and personal information, along with some additional details specific to your construction industry, such as:

      • Copies of contracts or purchase orders from current projects.
      • A list of equipment you own or lease.
      • Estimated budgets for upcoming projects.
      • Financial statements and tax returns for your business.


      A line of credit is an essential tool for construction businesses looking to manage cash flow, take advantage of opportunities, and navigate challenges in the ever-growing industry. By understanding the different types of lines of credit available, how to qualify for one, and how to use it effectively, construction companies can ensure they have set themselves up for strong growth.


      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.

      No, loans and lines of credit are two very different types of financing for construction businesses.

      Construction business 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.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      *The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (November 13, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

      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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