--- title: Why Contractors Should Get A Line Of Credit When They Don’t Need One description: When you have plenty of cash it seems stupid to waste time setting up a line of credit. However, that’s exactly when you should apply or one image: https://www.shawnmccadden.com/hs-fs/file-15775142-jpg/images/melanie_portrait-wr.jpg --- [![the design builders blog](https://www.shawnmccadden.com/hs-fs/file-1968953853-jpg/images/ShawnMccadden-DBblog-header.jpg "the design builders blog")](https://www.shawnmccadden.com/) [![Subscribe to the Design/Builders Blog](https://no-cache.hubspot.com/cta/default/81069/62868785-47fb-4751-8ade-e9392edbbdd1.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/62868785-47fb-4751-8ade-e9392edbbdd1) # The Design Builder's Blog ## [Why Contractors Should Get A Line Of Credit When They Don’t Need One](https://www.shawnmccadden.com/the-design-builders-blog/bid/101587/Why-Contractors-Should-Get-A-Line-Of-Credit-When-They-Don-t-Need-One) Posted by [Shawn McCadden](https://www.shawnmccadden.com/the-design-builders-blog/author/shawn-mccadden) on Thu, Jan 09,2014 @ 08:27 AM - [Tweet](https://twitter.com/share) ## **Why Contractors Should Get A Line Of Credit When They Don’t Need One** ![Melanie Hodgdon, Business Systems Management](https://www.shawnmccadden.com/hs-fs/file-15775142-jpg/images/melanie_portrait-wr.jpg?width=85&height=128&name=melanie_portrait-wr.jpg)****     **Guest Blogger: [Melanie Hodgdon](https://www.shawnmccadden.com/melanie-hodgdon-bio/)** is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of [***A Simple Guide to Turning a Profit as a Contractor*.**  ](http://www.moneymazebooks.com)Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant. **![Contractor cash flow](https://www.shawnmccadden.com/hs-fs/file-15734246-jpg/images/cash_flow_highlighted-wr.jpg?width=335&height=224&name=cash_flow_highlighted-wr.jpg)** ** ** ### **A line of credit can be your cash flow insurance** I recently had a conversation with a client who, after an incredibly profitable startup a couple of years ago, encountered a perfect storm of difficulties and **recently found himself facing a severe cash flow crunch.** This is one of those things that happens in any industry, and seems particularly **prevalent among construction and remodeling companies** ** ** ### **The problem is sort of like health insurance. ** **![Contractor Line of Credit](https://www.shawnmccadden.com/hs-fs/file-441338484-jpg/images/paying_for_insurance-wr.jpg?width=117&height=176&name=paying_for_insurance-wr.jpg)When you’re young and in perfect health, it seems stupid to waste money on insurance.** There are so many more important (and fun) things to buy: trucks, tools, additional personnel; the list is endless. I remember when I fell off my roof, my life didn’t flash before my eyes, but I did have a very clear sequence of thoughts. > 1. I hope the cat isn’t lying where I’m going to land (he wasn’t) > 2. This is SO going to hurt (it did) > 3. I really, really wish I had insurance (I didn’t)   ### **Back to the cash flow issue. ** The point is that when everything is going great and you have oodles of cash, it seems stupid to waste time setting up a line of credit. **However, that’s *exactly* when you should apply: when you don’t need it.** Once you need a line of credit (or, more accurately, once you *admit* to yourself that you need it), the chances are pretty good that your Balance Sheet will look pretty bad, **and it’s your Balance Sheet that creditors want to look at. ** ** ** ### **Working with your lender** ![Getting a line of credit as a contractor](https://www.shawnmccadden.com/hs-fs/file-445191686-jpg/images/meeting_with_banker-wr.jpg?width=111&height=167&name=meeting_with_banker-wr.jpg)   Your bank is actually less interested in your income or even your profit figures; **what matters is the extent to which you’re able to pay off debt,** and the degree to which your company is running on credit. We’ll look at the critical numbers in a follow-up blog. In the meantime, one of the things that saved my client from being turned down by the bank was that **he had an excellent relationship with the bank staff, who went to bat for him.** While things were going well, he’d made a point of sharing his successes with key personnel. They knew he was a hard worker with a solid business plan and a track record of success, and **this personal knowledge allowed them to see past the current bad-looking financials. ** ** **   ### **Here is a summary of steps to help contractors secure a line of credit** > 1. **![Contractor balance sheet](https://www.shawnmccadden.com/hs-fs/file-443603143-jpg/images/balance_sheet-wr.jpg?width=101&height=150&name=balance_sheet-wr.jpg)Learn more about your Balance Sheet**, the often under-utilized and misunderstood financial report that can spell success or failure > 2. **Make a point of getting to know your bank personnel,** particularly your loan officers; this can up your chances of approval by lifting you from anonymity > 3. **Apply and get approval for a line of credit when your books look good**, when you have plenty of cash, you’ve paid down debt, and you don’t need credit       Topics: [Business Financials](https://www.shawnmccadden.com/the-design-builders-blog/topic/business-financials), [Success Strategies](https://www.shawnmccadden.com/the-design-builders-blog/topic/success-strategies), [Financial Related Topics](https://www.shawnmccadden.com/the-design-builders-blog/topic/financial-related-topics), [Cash Flow](https://www.shawnmccadden.com/the-design-builders-blog/topic/cash-flow), [Guest Blogs](https://www.shawnmccadden.com/the-design-builders-blog/topic/guest-blogs) ### Subscribe by Email [![please donate](https://no-cache.hubspot.com/cta/default/81069/d6888f7b-f488-4356-88b4-14128c5aab4b.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/d6888f7b-f488-4356-88b4-14128c5aab4b) [![cogs worksheet tool free download](https://no-cache.hubspot.com/cta/default/81069/7baf34b1-cad0-4bdf-84eb-b21dd6da4973.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/7baf34b1-cad0-4bdf-84eb-b21dd6da4973) [![MA CSL Classes](https://no-cache.hubspot.com/cta/default/81069/663d3a42-f898-41b6-850d-dd6c96899668.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/663d3a42-f898-41b6-850d-dd6c96899668) ### Are You Documenting Your Crew's  Compliance With The RRP Rule?  [![download free RRP checklist](https://no-cache.hubspot.com/cta/default/81069/dd6aace9-6cb0-4ad2-a55a-09846d7f5b5e.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/dd6aace9-6cb0-4ad2-a55a-09846d7f5b5e)   ### Frustrated With Your Current Method Of Estimating Projects?   [![free excel estimating template](https://no-cache.hubspot.com/cta/default/81069/14387bf1-ade4-4b88-9c17-1b56a85bab52.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/14387bf1-ade4-4b88-9c17-1b56a85bab52) ## Not Sure Of Your True Labor Costs?  [![New Call-to-action](https://no-cache.hubspot.com/cta/default/81069/390dc019-2e22-41cc-8b47-eeb259f25bf3.png)](https://cta-redirect.hubspot.com/cta/redirect/81069/390dc019-2e22-41cc-8b47-eeb259f25bf3) ### Find what you are looking for - 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