Good Morning,

I am looking for some guidance on what other contractors secure for a line of credit as a percentage of their total revenue. We currently have a line of credit that is rarely used but as we acquire larger projects that are heavily labor and equipment intensive we want to be certain that we have adequate credit available if the need arises.

Thank you,

Rule of thumb dictates 5% of revenue.

John:  I am a former bond underwriter and currently a banker that specializes in contractors.  I would advise you to start by determining the size line that you think you actually need and also discuss with your bonding agent what your surety would like to see in order to provide bond support at the job size and backlog you are considering.  That being said, most GC's are fine with lines at about 5% of annual revenues and subs at 10%.  If they encounter an opportunity where a temporary line increase makes sense, we typically do a temporary overline to accomodate that.

Our line is about 12% of annual revenue. We are a speciality subcontractor.

My largest surety company likes to see the line of credit from the bank at around 10% of the bonding line. With rare use it can be difficult to convince the bank to continue to hold that amount open since it has more impact on their balance sheet and assessments than in the past. Surety is usually open to the discussion, proactive of course, when you change the line.

John,

Our construction accountants have given us a base line of at least 5% line of credit to total revenue.  I would double that if your projects are privately funded.

Kevin