general contractor line of credit

You have $2 million in backlog you cannot take.

Not because you lack the crews or the estimating capacity. Because your $500,000 line is drawn to $460,000, covering payroll on two jobs that are 60 percent complete and waiting on pay applications that have been sitting with the owner's PM for three weeks. You call your banker and ask about an increase. They ask you to send over a package.

Most contractors send whatever the accounting team can pull that afternoon. The ones who get approved send something different, because they understand what the bank is actually deciding.

Here is the part that surprises people. The bank is not primarily asking whether you can repay more. They are asking what you are going to do with it. A general contractor line of credit is underwritten against how the money moves through your business, not just against what your financial statements say you are worth. That single distinction explains why financially healthy contractors get turned down.

Why banks decline a construction line of credit increase

Lenders draw a hard line between two uses of a revolving line of credit.

A line used for growth funds something specific and temporary. Mobilization on a larger project. A materials buy on a job that starts next month. Equipment for a class of work you are moving into. The balance goes up, the work converts to cash, the balance comes back down.

A line used to cover operating gaps never comes back down. It covers payroll in the slow weeks, pays down vendors when AP gets tight, and absorbs the lag between spending money and collecting it. Contractors do this constantly, and most consider it the entire point of having a line.

Bankers do not see it that way. When they pull your utilization history and see a balance that has not touched zero in eighteen months, they are not looking at a cash flow tool. They are looking at a company whose operations do not generate enough cash to run themselves, and a limit increase would raise that floor rather than fund anything. Increasing a line that is being used structurally makes the exposure worse, not better.

This is the first thing to understand before you ask, and it is the opposite of the advice most contractors have absorbed.

Three other patterns commonly sink a request:

Stale work-in-progress. You submit WIP as of the last closed quarter. It is now week six of the following quarter. The bank is underwriting a picture of your company that is a month and a half old, on jobs that move weekly.
A profit fade pattern. Closed jobs that finished below the margin you projected at 50 percent complete, repeatedly. To an underwriter that reads as either estimating you cannot trust or cost control you do not have. Either way, your forecasts stop carrying weight.
Receivable concentration. Sixty percent of your AR sitting with two owners. One slow payer stops being an inconvenience and becomes a default event.

There is also a structural handicap worth naming. Most banks evaluate contractors with the same framework they use for any other business, without adjusting for the cost and collection cycles that are specific to construction. This shows up in the data: construction consistently reports lower credit approval rates than most other sectors in the Federal Reserve's Small Business Credit Survey. Retainage held for a year, pay applications approved on a 30 day cycle and funded on a 60 day one, and costs incurred months ahead of the corresponding revenue are normal in your industry and look alarming outside it. Your reporting has to do that translation. The bank will not do it for you.

Diagnose how you are using your line of credit

Pull the last 24 months of line activity and look at the shape rather than the size.

If the balance rises and then returns to zero or near zero on a repeating cycle, you have a growth line. Each draw connects to work that converted. That is the pattern that supports an increase, and you can say so directly.

If the balance has a floor it never breaks below, that floor is the number the bank will focus on. A line that has not been under $200,000 in two years is really a $200,000 term loan with a revolving facility sitting on top of it. Asking to raise the ceiling does not address it.

If you find a floor, the productive move is not to request an increase. It is to identify what created it and address that first, which usually means collections, billing timing, or job selection. Coming back six months later with a line that cleared twice is a far stronger application than a well-written request made now.

What banks ask for before increasing a contractor line of credit

Expect most or all of the following. What matters is not just having them but understanding what the reader is looking for.

Current WIP schedule. The single most important document, and the one most often submitted stale. The bank reads margin by job, percent complete, and your over and under billing positions. What sinks it: a WIP dated more than 30 days back, or one where estimated cost to complete has not been touched since the job started.
Backlog report with gross profit by job. Answers whether future work supports the request. The bank wants signed contracts with expected margin, not a pipeline of pursuits. What sinks it: mixing awarded work with probable work in the same number.
Aged AR and AP with retainage separated. Shows collection performance and where cash is trapped. Retainage broken out separately matters, because a lender who cannot distinguish retainage from slow-paying receivables will assume the worse of the two.
Trailing twelve months of financial statements. Income statement, balance sheet, and cash flow statement. Trailing twelve months rather than fiscal year, because seasonality distorts any single quarter. What sinks it: internally prepared statements when the request is large enough to warrant a review or audit.
Borrowing base certificate. Required if the line is asset-based rather than a straight revolver. It calculates availability from eligible receivables, typically excluding anything past 90 days, retainage, and related-party balances. Contractors are often surprised how much of their AR is ineligible.
Personal financial statement and guaranty. Most contractor lines require a personal guarantee. The bank is assessing whether the guarantee carries real substance.
Bonding capacity letter. Your surety has already underwritten your financial strength. A current letter from them is independent corroboration, and it costs you one email to request.

The ratios lenders run on a commercial construction line of credit

Underwriters run a consistent set of ratios: debt service coverage, debt to equity, the current ratio, and a fixed charge coverage test that often appears as an ongoing covenant rather than a one-time check.

For a credit request specifically, each answers a narrow question. Debt service coverage asks whether current operating income can carry the payments. Debt to equity asks how much of your balance sheet already belongs to creditors. The current ratio asks whether you could meet short-term obligations if a job went sideways. Fixed charge coverage asks whether you can keep meeting fixed obligations quarter after quarter, which is why it tends to become a covenant you have to maintain rather than a hurdle you clear once.

The composition of your working capital matters as much as the amount. Two contractors can report identical working capital and be evaluated very differently depending on whether it consists of cash and fast-turning receivables or of stretched AR, heavy prepaids, and shareholder receivables that a lender will discount. Industry benchmarks published by the Construction Financial Management Association are a common reference point for how your ratios compare to contractors of similar size and trade. We covered that distinction in detail in Good vs. Bad Working Capital in Construction Finance, including the benchmarks lenders and sureties commonly apply.

If you are not sure how these documents relate to each other, Financial Statements in Construction covers what each statement does and how the WIP report connects to them.

What lenders mean by clean WIP

Contractors often assume a strong overbilling position reads well to a bank. It does not automatically.

Construction CPAs and surety advisors consistently make the same point: significant overbillings raise a question rather than settle one. Lenders and sureties want to confirm you are not pulling cash out of one project to fund another, or to cover general and administrative expenses. Overbilling on its own tells them nothing. Overbilling supported by corresponding cash or receivables tells them you are holding the money to complete the work it came from.

Which means billing ahead just before a credit request, with nothing on the balance sheet to back it, produces exactly the pattern that draws scrutiny.

The underlying question is whether the owner is financing the project or you are. That is what job borrow measures, and it is a sharper read than over and under billings alone. A contractor can look fine on billing position and still be lending heavily to their own jobs. Every dollar of job borrow is a dollar your line has to cover.

Underbilling carries its own cost, and a different one. It understates both your earned revenue and your liquidity in the same report, at the moment you are asking to be seen as stronger.

The common factor is integrity of the underlying numbers. The largest driver of your overbilling position is estimated cost to complete, which is only as good as the job costing behind it. If cost to complete is not being revisited in regular job reviews, your billing position is an artifact of an old estimate rather than a description of where the job actually stands. When a bank asks for current WIP, that is what they are implicitly testing.

Pay particular attention in the 40 to 80 percent complete window. Early in a job the numbers swing on projected profit that has not been earned yet. Late in a job there is little left to correct. The middle is where production and costs have both ramped up and where the picture is both accurate and still actionable.

Sizing and timing the request

Size it against modeled peak need, not a round number. Work out your maximum simultaneous exposure across the jobs you intend to run. Mobilization costs, the payroll you will carry before the first pay application funds, material buys, and the collection lag on each. How your schedule of values is structured affects that timing directly, since front-loading legitimate early-phase value shortens the window you have to self-fund. That produces a number you can defend line by line. A request for "double our current line" invites the bank to ask why, and the answer needs to be arithmetic.

Tie it to specific work. Named backlog you cannot currently staff. A project type you are moving into. A general statement that volume is growing is not a use of proceeds. A contract you have been awarded and cannot mobilize on is.

Ask before you need it. A request made while you are drawn to 92 percent reads as distress regardless of how it is worded. A request made at 40 percent utilization with backlog to point at reads as planning. Same company, different answer.

Give your banker something to defend internally. Your relationship manager is presenting your file to a credit committee that will never meet you. Whatever they cannot substantiate from your documents, they cannot argue on your behalf.

When the problem is receivables, not growth

If your diagnosis turned up a persistent floor driven by collection lag rather than expansion, an increase is the wrong instrument even if you could get one. It raises the cost of a problem instead of solving it. The first move is tightening the cash flow cycle itself through billing discipline and collections.

Where the lag is structural to your customer base, the alternative is converting receivables to cash directly. Invoice factoring advances against approved billings, so the funding scales with the work you have completed rather than with your balance sheet, and it moves faster than any credit committee. Spot factoring applies the same mechanism to a single invoice rather than your whole ledger, which suits a one-off gap on a slow-paying job. It carries a higher cost than bank debt, which is the honest trade: you pay more for speed and for capacity that grows with your receivables.

The two are not competitors so much as tools for different jobs. Factoring absorbs the collection gap. That keeps the line of credit clear for the growth it is meant to fund, which is also the pattern the bank wants to see when you eventually do ask for more.

Mistakes that cost contractors the increase

Submitting quarter-end WIP in week six of the following quarter
Requesting a number with no model behind it
Billing ahead before the request without cash or AR supporting the position
Presenting a pipeline as backlog
Waiting until the line is nearly exhausted to start the conversation
Treating the banker as an obstacle rather than as the person who has to make your case in a room you are not in

Frequently asked questions

How much can a general contractor borrow on a line of credit?

Limits are typically sized against working capital, receivables, and the scale of your annual volume rather than against a fixed formula. Asset-based lines calculate availability from eligible receivables through a borrowing base, which usually excludes retainage, balances over 90 days, and related-party receivables.

What credit score does a contractor need for a line of credit increase?

Personal credit is reviewed, particularly where a personal guarantee is involved, but it is rarely the deciding factor for an existing commercial relationship. Company financial performance, WIP quality, and how the existing line has been used carry more weight.

How long does a line of credit increase take?

Plan on several weeks from complete submission to decision, longer if the increase is large enough to require a new appraisal, an updated field exam, or reviewed financial statements you do not currently have. Incomplete packages are the most common cause of delay.

Should a contractor use a line of credit or a term loan?

A revolving line suits short-term needs that convert back to cash, such as mobilization and material purchases. A term loan suits long-lived assets like equipment. Using a revolver to finance something that will not convert within the operating cycle is one of the patterns lenders watch for. The SBA also guarantees several loan types available to contractors, including revolving facilities, which can carry different terms than conventional bank debt.

Can a construction line of credit be used for payroll?

It can be, and it commonly is. Understand that persistent payroll funding is precisely the utilization pattern that makes an increase harder to obtain, because it signals a structural gap rather than a growth need.

Where reporting decides the outcome

Most contractors who fail a credit review do not fail on financial strength. They fail on what they can produce and how current it is. A WIP schedule assembled by hand six weeks after quarter close is a different document from one that reflects where the jobs stand today, and a bank can tell the difference immediately.

ProNovos keeps WIP, backlog, and job-level margin current between month-end closes, so the package your bank asks for is something you export rather than something you reconstruct. If collection lag is the real constraint, QuickPay Direct converts approved billings to cash without adding to the line.