The lumber order must be paid before Monday’s delivery, payroll runs tomorrow, and last month’s progress payment remains in an approval queue. The job is profitable, but the bank balance doesn’t reflect that yet.
This gap between doing the work and getting paid is a common financial challenge in construction. It doesn’t always mean the job was priced poorly. This guide explains how a revolving credit line works, when it can help, what to review before signing, and how it fits alongside forecasting and better billing practices.
Why Cash Gets Tight in Building Work
The timing mismatch
Construction companies often pay for labor, materials, equipment, and subcontractors before collecting from the customer. Work may be billed at the end of a cycle, followed by reviews, revisions, and approval. Even after an invoice is approved, payment terms can add several more weeks.
Billing quality affects that timeline too. Errors and missing backup send pay applications back for rework, which is one reason many contractors move to construction invoice software instead of manual paperwork.
Retainage adds another delay. Owners or general contractors commonly withhold 5 to 10 percent of each progress payment until the work is complete and closeout requirements are satisfied. A profitable contractor can therefore have substantial money tied up in completed work.
How a Revolving Credit Line Works
A term loan provides a lump sum that is repaid on a set schedule. A revolving line provides an approved limit that can be used as needed. As the balance is repaid, that amount generally becomes available to borrow again.
This structure can suit contractors with recurring but temporary cash gaps. However, providers may charge interest, draw fees, maintenance fees, or other costs even when the full limit isn’t used.
When it can help
A credit line is best suited to short, reasonably predictable gaps. Examples include buying materials before the next progress payment, covering payroll while an approved invoice is processed, or paying mobilization costs that will soon be reimbursed.
It is a poor fit for a project that is losing money, a customer who may not pay, or a long-term shortage of working capital. Borrowing in those situations can delay the underlying problem while increasing its cost.
A Seven-Step Playbook for Using It Safely
- Build a rolling 13-week cash forecast and set a realistic reserve target.
- Tie each draw to a specific need and an expected source of repayment.
- Set an internal repayment date based on a conservative collection estimate.
- Submit complete pay applications on schedule to reduce preventable delays.
- Track retainage separately and begin collecting closeout documents early.
- Compare offers by total cost, limit, fees, repayment frequency, and eligibility.
- After the payment arrives, reduce the balance and review whether the limit still fits the company’s workload.
A credit line should support the cash forecast, not replace it. Contractors may compare a construction line of credit from Redline Capital for short gaps, but terms and timing vary by applicant. If the company repeatedly needs to borrow more than expected or can’t repay draws when planned, the forecast, project margin, or billing process needs attention.
Alternatives and Where This Fits
A revolving line is one of several ways to manage working capital. The right option depends on the purpose, expected repayment date, customer reliability, and total financing cost.
- Bank credit lines: May offer competitive pricing, but approval can require stronger financial records, collateral, or a longer operating history.
- Invoice financing or factoring: Provides an advance against unpaid invoices. It can help when receivables are reliable, although fees reduce the margin and the provider may become involved in collections.
- Term loans: Better suited to one-time purchases, such as a truck or major equipment, than recurring timing gaps.
- SBA-backed working capital lines: May provide larger limits or longer terms, but the documentation and approval process can be more involved.
- Online revolving lines: Often emphasize faster applications and flexible draws. Contractors should compare the total cost and repayment schedule rather than focusing only on approval speed.
Some contractors compare bank options with a revenue-based revolving product from Redline Capital. The company’s published product information lists lines from $30,000 to $750,000, factor rates from 1.1x to 1.4x, terms from 6 to 24 months, and weekly or monthly repayments. Actual availability and terms vary by applicant.
Redline Capital also lists baseline criteria that include at least $30,000 in monthly revenue, 12 months in business, a U.S.-based company, and a credit score of 600 or higher. Its application information says applicants may be asked for four months of bank statements. These published figures can help with comparison shopping, but they don’t guarantee approval or a particular offer. For broader context, review alternative lending trade-offs before choosing.
A Small Example, With Small Numbers
Suppose a contractor wins a $75,000 interior build-out. Materials cost $35,000 upfront; the customer pays 50 percent at the midpoint and completion, and 10 percent retainage is withheld.
The contractor draws $30,000 for materials and payroll, then repays it when the midpoint payment arrives 35 days later. A 1.1x factor would mean about $33,000 in total repayment, including a $3,000 financing cost.
The draw makes sense only if payment is dependable and the margin can absorb the financing cost. Contractors weighing more than one offer should compare credit lines on total repayment rather than headline rates.
The Real Takeaway
Borrowing doesn’t fix an unprofitable project. It can provide time for a profitable project’s payment to arrive. Contractors who use credit lines carefully tend to forecast weekly cash needs, submit complete invoices promptly, track retainage closely, and maintain reserves so borrowing remains a choice rather than an emergency.
Before signing, model how each repayment will affect the company’s cash balance. A bank, online lender, or provider such as Redline Capital should be evaluated as one part of a broader cash management plan.
FAQs
What should a contractor check in the fine print?
Review pricing method, total repayment, draw and maintenance fees, repayment frequency, term length, early repayment rules, eligibility, and personal guarantee provisions.
How do material prices affect the decision?
Higher material costs require more cash before invoicing or collection. Accurate forecasting can limit the draw’s size, duration, and financing cost.
Should a draw cover a disputed invoice?
No. Confirm the payment date and resolve the dispute first.
When should a balance be reduced?
After the related payment arrives, subject to the cash forecast.
