According to the Dodge Construction Outlook, overall construction starts are expected to be flat in 2023 after an increase of 17% this year. That means competition for projects is likely to be robust—with companies able to show they are best positioned to do the work winning out over less-prepared companies.
If you are the owner of a company operating in the construction industry, one of the ways you can help ensure you are in the former group rather than the latter is to secure a business line of credit for your construction company. Having quick access to funds may be invaluable to handle unexpected expenses and remain liquid.
What is a business line of credit? It basically helps your company have ongoing access to capital, much like a credit card holder has access to a credit line. You only borrow from the line when you need to and pay interest on any balance you have. Once you repay the balance, you can borrow again up to your credit limit for the rest of the credit line’s term.
The benefits of having a line of credit for construction companies include helping manage cash flow during periods of large expenses such as insurance premiums, licenses and permits, raw materials and payroll. It’s also valuable to help smaller businesses manage multiple projects at one time.
What the difference between a construction loan and a line of credit? The flexible option of a line of credit provides ongoing access to a certain funding amount for a period of one to two years—with the ceiling usually being $500,000. As noted above, you only pay interest on any outstanding balance. A construction loan, on the other hand, is a one-time lump sum—often for a specific purpose—that must be paid back within a term of one to five years—with the ceiling usually being $2 million. You start paying interest right away and until the loan is paid off.
How do you qualify? Each lender will have specific factors it evaluates when determining whether a construction company qualifies for a line of credit. Time in business may be a criteria, with most lenders want borrowers to have been in business for at least six months. Revenue is another thing they will look at, with a gross revenue of at least $50,000 a year usually being preferred. Also important is your personal credit score, which may need to be at least 550 or so.
How do you apply? Research lenders to determine which one offers the best product or terms for your needs, choose the funding amount you want to apply for and submit all the paperwork required. Once you are approved, you’ll have quick access to cash and a safety net from cash flow issues.
The Takeaway
As the owner of a construction company, securing a business line of credit to ensure you have the necessary resources to be successful is a great strategy to build your business. Unlike traditional lenders like banks, whose application and approval process can be cumbersome and often end with a “no,” alternative lenders are in your corner and focused on helping you make your business dreams come true.
If you have any questions about how to secure a construction company line of credit, give Clear Skies Capital a call at 800-230-9822. You may be pleasantly surprised at what you qualify for.