The ongoing potential for a recession as well as the realities of inflation, labor shortages and supply chain issues have cast a bit of a pall over the construction industry in 2023. The outlook calls for construction starts to remain flat through the end of the year, a significant departure from 2022, which saw them increase by 17%.
What this means for you as the owner of a construction company is that competition for work could be brutal and you may find yourself short of cash for expenses like payroll, equipment rentals or purchases and other operating expenses. What can you do to get through tough times like that? Consider a business line of credit.
What is a construction business line of credit? A construction business line of credit works somewhat like your personal credit card. Your business will be approved to borrow up to a certain amount; you can access funds up to the top of your credit line as you need them—and interest will only accrue on your outstanding balance, i.e., the money you have used.
What are the benefits of a construction business line of credit? For construction companies, the most important benefits of having a business line of credit include quick access to cash and improved cash flow. This may help you manage multiple projects at the same time and work through the common lag time between invoicing clients and getting paid. Other benefits include:
- Flexibility—Funds can be used when and for whatever you like, including buying equipment and hiring crew.
- No prepayment penalties—If you have the cash to pay your line down to $0, you can do it without any penalty.
What is the difference between a construction business line of credit and a construction business loan? As noted above, a construction business line of credit is a flexible option that allows you to access funds up to the amount you’re approved for and only pay interest on the outstanding balance. Repayment may also be flexible, with some lines of credit requiring interest-only payments. A construction loan, on the other hand, involves a fixed amount you borrow. The interest rate is often fixed for the life of the specific repayment period.
What requirements do construction companies need to apply for a business line of credit? The three most important factors lenders will look at when deciding if you qualify for a construction business line of credit are:
- Credit history—This may include your personal credit as well as your business credit.
- Time in business—Businesses less than two years old will have fewer options than more established businesses.
- Revenues—Your lender will want to ensure you’re able to pay back what you draw from your line of credit by reviewing your business’s bank statements and may even require a few years of business tax returns.
What other funding options do construction companies consider? A business line of credit isn’t the only option available to you to access funds for your construction company. You may also want to consider an SBA loan, equipment financing, bank loan or business credit card, depending on your specific needs and situation.
Contact Clear Skies Capital today at 800-230-9822 to see if you qualify for a construction business line of credit or discuss other financing options.