How to Get a Construction Line of Credit in 6 Effective Steps


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How to Get a Construction Line of Credit in 6 Effective Steps

8 min read. December 10, 2022 by Phil Fernandes

Looking to get a construction line of credit for your business? Find out the most effective steps you need to take in 2022.

Business lines of credit are essential for entrepreneurs in all sectors of our economy, but they’re especially important for those in the construction industry.

Most businesses in this sector perform a majority of their work during the spring and summer months, with the rest of the year acting as their “slow season.” Their annual revenue depends on their performance during these months, and any hiccup or unexpected downtime can be significantly costly for their bottom line.

1. When should a business use a construction line of credit?

The main reason why companies get a construction business line of credit is when they need to gain access to short-term funding, and want to have the flexibility to do so as they need. A lot of construction businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory.

Even if you capitalize on every opportunity to earn during your busy season, you might still find yourself with cash flow constraints for one reason or another.

It’s a common challenge for almost every business owner, but for the construction industry, consistent cash flow problems can put you into a very constricting financial position.

As you know, construction companies must keep their equipment up-to-date and maintain their licenses to perform their type of work. All of this is expensive, and if you don’t have the capital to afford either one, it’s a slippery slope toward further financial issues.

You’ll need resources to leverage if you find yourself in this position, and what better safety net than a construction business line of credit?

With a business line of credit behind you, you can stop worrying about the nagging expenses that complicate your growth. You’ll have capital on an as-needed basis to help you forecast for your future, take advantage of new opportunities, and, most importantly, grow to your full potential. 

Securing a construction line of credit is as easy as finding a lender that offers this type of financing, but securing favorable terms is a bit more challenging.

Don’t worry; We’ve got you covered. Here’s everything you need to know about construction lines of credit and how to find the best deal for your specific circumstances in 2022. 

construction line of credit

2. What is a construction line of credit, and how does it work?

A construction line of credit is one of the most flexible financing options available to entrepreneurs.

Unlike a traditional loan, where you receive a lump sum payment that you repay over a set period of time, a construction line of credit allows companies to draw funds from their credit line whenever they need them and pay them back on their schedule.

Basically, it provides you with short-term access to capital on an as-needed basis to use for almost any business expense. Business lines of credit are similar to business credit cards, but you can’t draw physical cash with a business credit card.

Having both of these resources on hand increases your purchasing power and streamlines your cash flow significantly, so it’s a good idea to explore both of these options at some point over your business’s lifetime.

Most credit lines are “revolving,” too, which means you can draw the same funds again once you pay off your existing balance. This schedule allows you to always have cash on hand at a moment’s notice—something essential for any construction company. 

3. How can I use a construction line of credit?

Entrepreneurs will typically use lines of credit to cover expenses while they focus on the bigger picture. In construction companies, lines of credit are essential for navigating slow seasons and covering up-front contract costs.

For example, if you’re coming off your slow season and don’t have much capital on hand, you can leverage your business line of credit to purchase the materials and supplies needed to complete an upcoming contract and get the ball rolling again. 

You can use a construction line of credit for almost any business expense, but here are a few of the most common:

  • Payroll
  • Inventory
  • Up-front supplies
  • Rent
  • Utilities
  • Vehicle maintenance/repairs
  • Marketing initiatives

It’s easy to get carried away with the increased purchasing power, but it’s important to consider how you’ll repay the borrowed amount before you draw funds from your line.

If you overload your construction line of credit, you can find yourself without the resources you need to complete your work and pay your expenses. You’ll also have to pay an exorbitant amount of interest, which only makes your repayment that much more complicated.

4. What are the benefits of a construction line of credit?

Construction companies can significantly benefit from having a line of credit in their back pocket. Here are a few of the many benefits of a construction line of credit:

  • Cover expenses during construction delays
  • On-demand working capital
  • Manage cash flow during slow seasons
  • Enhanced forecasting
  • Ability to take advantage of opportunities
  • Increased negotiation and purchasing power with suppliers
  • Easier financial risk management
  • Hire additional crew members
  • Purchase necessary equipment
  • Maintain/repair equipment quickly

Let’s say you’re approached by an equipment supplier who offers you a significant discount on an asset needed to apply for higher revenue contracts.

If this offer comes during your slow season, you might not have the capital on hand to afford the purchase and manage your expenses until you start working again, which can force you to pass up on the opportunity.

You can only do this so many times until your competitors outpace you, but with a construction line of credit, you can take advantage of the discount AND cover your expenses.

Your line of credit can help you with anything that comes with a price tag. Managing cash flow in a construction business isn’t easy, especially considering the seasonality of their work, but a line of credit gives you a leg up in almost every regard.

For one, you have the resources to manage your expenses, which allows you to take advantage of opportunities that you wouldn’t previously have been able to.

5. What do you need to qualify for a construction line of credit?

You can secure a construction line of credit from a variety of lenders, but the qualifications will differ depending on the organization you’re dealing with. Some lenders will require higher credit scores than the next, while others will prioritize your annual revenue over your time in business requirements.

Here are National Business Capital’s minimum requirements for a construction line of credit:

small business loans application

1 year in businessEven as a young, growing business, you can still find financing options

fastest small business loans

$120K in annual revenue

To qualify, your business must be generating a minimum of $10,000 monthly revenue

learn about small business loans

600+ Credit Score Required

We have financing options for businesses with excellent and bad credit.

The qualifications will also depend on the maximum credit limit you’re seeking. If you don’t need a higher limit, the qualifications won’t be too overbearing, but expect to provide robust financial information if you want an elevated limit, like $750,000. 

6. What are the alternatives to getting a construction line of credit?

Construction lines of credit are a great way to grow your business, but they aren’t the only financing option available to entrepreneurs in this sector. Here are a few alternatives to construction lines of credit that can help you reach your full potential:

6.1. Construction Term Loans

Term loans are what most people think of when they hear “business financing.” This option is provided in a one-time, lump sum payment that you’ll repay over the course of your term.

You’ll pay off the principal and the interest, so the total amount you pay will exceed the funds you’re given at the beginning of your term. Once you repay the full amount, you’ll have no debt attached to your name.

Construction term loans are often used to support large contracts or the purchase of expensive equipment. You could secure the financing before the contract starts, then use the profits to pay off what you owe, or you could secure a term loan halfway through your contract to help meet deadlines—the choice is yours to make.

6.2. Construction Equipment Financing

The construction industry relies on heavy equipment to perform a variety of tasks, but the price tag associated with these assets is often more than entrepreneurs can afford. For example, a single excavator can cost anywhere from $100,000 to $500,000.

Fortunately, construction equipment financing can help break down the sizeable purchase into more manageable monthly payments. Some lenders will allow you to use the asset you’re seeking to purchase as collateral for the financing as well.

Construction equipment financing often comes with a high-interest rate, which deters many entrepreneurs from going down this route. However, if the equipment you’re purchasing will yield massive results in your business, then the cost of financing becomes much less important.

6.3. Construction Business Advance

A business advance exchanges your future revenue for cash in the short term. It’s essentially an advance on your future sales, but you won’t be able to seek the full value of this amount because of the lender’s fee. Generally, you can expect to secure up to 85% of your future sales.

This type of financing is common in the construction industry. Most contracts are paid once they’re completed, which doesn’t allow for too much working capital before the work is completed. A business advance is a way around this.

You can secure the funds you’ll receive at the end of your contract to ensure you’re able to finish your job within the time frame.

6.4. Construction Accounts Receivable Financing

Late invoices can prevent you from starting new jobs, but construction accounts receivable financing allows you to turn your late payments into cash today.

Much like a business advance, you won’t be able to secure the full value of your outstanding payments because of the lender’s fee. Still, it’s a great option if your revenue is tied behind late payments. 

All of these financing options can help you reach your full potential, but determining which one is right for your specific needs is a bit more complicated. You’ll have to consider your business model, financial situation, and your goals for the financing before making a decision.

Even then, it’s not always clear, which is why so many entrepreneurs team up with National Business Capital to have our expert Business Finance Advisors do the heavy lifting for them.

Streamline your search for a construction line of credit with National Business Capital

Entrepreneurs like yourself don’t have a lot of time on their hands. Between managing the day-to-day of your operations and keeping the ship on track, you might not have a chance to sit and compare the options available to you.

That’s not to mention the time and effort associated with filling out applications and submitting them to multiple lenders, too, which is yet another lengthy component of the already long process. There has to be a better way to secure the funds you need to grow, right?

There is. National Business Capital, the leading SMB FinTech marketplace, can help you streamline your search for a construction line of credit or other financing options. Rather than applying to lenders one by one and waiting for their individual decisions, you can fill out one application with us and apply with 75+ lenders simultaneously.

Then, our expert Business Finance Advisors reach out and learn everything they can about you, your business, and your circumstances to ensure we can connect you with the RIGHT lender for your specific needs.

We’ve secured $2 billion on behalf of our clients through 25,000+ transactions, making us uniquely capable of helping you reach your full potential. We’ve worked with almost every industry—you can trust that we “get” your specific needs. Don’t believe us? Check out some of our 2,000+ 5-star reviews on Trustpilot.

We’re here to help you grow. Complete our digital application today to start the process.


Why Would a Construction Company Need a Line of Credit?

Lines of credit provide ongoing access to capital for almost any business purpose. You can draw funds up to your credit limit, and only the amount you’ve drawn is subject to interest. Construction companies will use lines of credit to bridge payment gaps between contracts and to cover payroll, inventory, rent, and maintenance costs. 

With a line of credit behind you, you can stop worrying about your expenses and focus on the bigger picture.

What’s the Difference Between a Construction Loan and a Line of Credit?

Construction loans are often provided in lump sum payments, whereas a line of credit provides consistent access to capital throughout your term.

If you secure a construction loan and end up needing more money, you’ll have to secure additional financing to cover that gap. Lines of credit, on the other hand, allow you to draw funds whenever you need, as long as you don’t exceed the maximum limit on your line. 

How Do You Get a Construction Loan?

You can secure a construction loan, or construction line of credit, through banks, credit unions, online lenders, and marketplaces.

Banks and credit unions often have strict eligibility requirements and low interest rates, while online lenders are the opposite. Marketplaces combine the best of both worlds by providing access to traditional and online lenders, allowing you to receive multiple offers with a single application.

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Last Updated on December 23, 2022

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Phil Fernandes

Phil serves as VP of Financing for National Business Capital. He boasts 15 years of sales experience, 10 years of managerial experience, and has been with National for over 6 years. His role at National focuses on managing and directing National’s team of Business Finance Advisors and overseeing project development. Phil is also responsible for Financial Reporting, where he prioritizes results and revenue growth. Phil is passionate about sharing his expertise and insight with small business owners, and regularly contributes articles on National’s blog.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.