Can a general contractor use a LOC to fund subcontractors?

Yes. Many GCs use revolving lines to pay subcontractors within contract terms, then repay when the owner's payment arrives. This helps maintain subcontractor relationships and avoid disputes over payment timing.

What credit score do construction companies need?

Most lenders require a personal FICO of at least 620 for construction businesses, with better rates available at 680+. Some alternative lenders will work with scores in the 580–620 range, typically at higher rates.

Are construction LOCs secured or unsecured?

Construction lines under $100,000 are often unsecured with a personal guarantee. Larger lines ($250,000+) may require a blanket lien on business assets (accounts receivable, equipment) or a specific project receivable as collateral.

Industry Guide · Construction

Commercial Line of Credit for Construction Businesses

Construction businesses face a fundamental cash flow challenge: materials and labor must be paid weeks or months before project draws or final payment arrives. A commercial line of credit bridges this gap, allowing contractors to fund job costs upfront and repay as project payments come in.

Common Uses of a LOC in Construction

Purchasing materials and subcontractor deposits before project draw schedules allow reimbursement
Covering payroll between project milestones when draws are delayed
Funding mobilization costs (equipment rental, permits, insurance bonds) at project start
Bridging the gap between project completion and final payment receipt
Managing cash flow when multiple projects are in progress simultaneously

Cash Flow Patterns

Construction businesses operate on draw schedules — lenders release funds at project milestones. But labor, materials, and subcontractors must typically be paid before draws are approved. This creates a working capital gap that can range from two weeks to several months on large projects. A revolving LOC lets contractors fund job costs, then repay when project draws arrive. Seasonal variation also matters: most construction slows in winter in northern climates, creating revenue troughs that a line can bridge.

What Lenders Evaluate

Lenders evaluate construction businesses on time in business (2+ years preferred), personal credit score, monthly revenue, and the quality of the contract backlog. Lenders may ask for a schedule of current contracts and their payment terms. Businesses with government contracts or institutional clients are generally viewed more favorably. Lenders also assess whether the business carries adequate liability insurance and bonding.

Frequently Asked Questions

Can a general contractor use a LOC to fund subcontractors?: Yes. Many GCs use revolving lines to pay subcontractors within contract terms, then repay when the owner's payment arrives. This helps maintain subcontractor relationships and avoid disputes over payment timing.
What credit score do construction companies need?: Most lenders require a personal FICO of at least 620 for construction businesses, with better rates available at 680+. Some alternative lenders will work with scores in the 580–620 range, typically at higher rates.
Are construction LOCs secured or unsecured?: Construction lines under $100,000 are often unsecured with a personal guarantee. Larger lines ($250,000+) may require a blanket lien on business assets (accounts receivable, equipment) or a specific project receivable as collateral.

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