Right off the bat, business owners may not have the most favorable idea of a construction line of credit, since there’s a common misconception that lines of credit are a lifeline when your business is in a tight financial spot. While this may be the case in certain situations, a construction line of credit can also be an important part of growing your business and paving the way to long-term success.
What is a construction line of credit?
A line of credit is a predetermined amount of money that you can tap into when you need it. Similar to a credit card—and unlike a term loan—a line of credit offers a flexible financing option thanks to its revolving credit line that you can use and replenish through regular payments on an ongoing basis.
When you apply for a line of credit, your business—assuming that your application is successful—will be approved for a certain credit limit. From there, you can essentially use however much you’d like up to the credit limit whenever you’d like, and then pay back what you borrowed on a weekly or monthly basis.
This increased flexibility allows you to confidently run your business knowing that you have a store of capital at the ready to support your growth. It also offers additional benefits such as helping you build up your business credit to support further growth opportunities in the future.
Did you know?
A Bluevine Business Line of Credit can actually help your business build its credit score? In addition to having no prepayment penalties, our Business Line of Credit comes with the benefit of reporting positive payment history to business credit bureaus. That means that regularly utilizing and paying down your revolving credit balance can help your business operate and set you up for a brighter future.
How can you use a line of credit to grow your construction business?
Before securing a line of credit for your construction business, it’s helpful to have a clear idea of how the source of financing will support your business and growth over time. Here are a few of the ways that you can strategically use line of credit funds to move your business forward:
Buy or lease equipment
The last thing you want is to not be able to take on a project because of the lack of the right equipment. A construction line of credit gives you the ability and freedom to buy or lease quality equipment and take on more projects and types of work that you wouldn’t necessarily have been able to tackle in the past. This will also help meet—or, in some cases, get ahead of—project deadlines by working more efficiently, which in turn can lead to strong client relationships and help grow your business by getting more referrals from happy clients or freeing up extra time to take on more jobs in a shorter period of time.
Take on bigger jobs
While bigger construction jobs mean a bigger payout—and thus, more revenue—for your business when the project is complete, it usually means bigger costs up front, too. In addition to the potential need for additional equipment and more team members, both of which cost more money, bigger jobs generally come with a bigger price tag on materials. A line of credit can help ensure that higher expenses don’t deter you from bidding on bigger projects, since it can help you confidently cover increased costs upfront, which in turn will be a smart investment in your business long term.
Hire additional crew members
Your team and crew is the most important aspect of your business. You can have all the right equipment in place, but if you don’t have the right team or a big enough team in place, the project won’t be completed in time, which can negatively impact your business. If you have a construction line of credit in place, you can use the funds for recruiting, training, and hiring the best employees for your business. Similar to how new equipment can improve your efficiency, growing your team could be the secret to beating deadlines and taking on more projects in less time.
Ensure consistent cash flow
There are so many daily, weekly, and monthly costs that come up in the construction industry, including equipment, taxes, employee wages, office supplies, insurance premiums, legal fees, and so many more. With a construction line of credit in place, you don’t need to worry about cash flow issues, which could arise as a result of anything from business slowdowns and economic downturns to project delays or overdue payments from clients. The line of credit funds help ensure that you always have a backup source of cash so that money continues flowing in and out of your business when needed.