Set Up Your Restoration Credit Line in the Quiet Month

The time to set up your credit line is the quiet month, not the morning payroll will not clear. Most restoration owners hear that and nod, then call the bank for the first time when a storm has already put six crews in the field and the carrier checks are six weeks away.

I would go further. A line of credit is not a fire alarm you pull in an emergency. For a restoration company it is working capital, a planned tool for a gap the business creates every single time it says yes to a job.

Why restoration needs one by design

You pay for the work before you are paid for the work. Crews, drying equipment moves, subs and materials go out the door on day one. The carrier's payment arrives after documentation, approval, supplements and a payment clock you do not control. Our post on the claim cycle walks through that timing.

That gap is structural. It is not a sign you are managing badly, and it gets wider when you are busy, because every new job mobilizes before the last one collects. A line of credit exists to bridge exactly that: money out now, money in later, with a known cost for the days in between.

What the numbers look like

Here is a labeled illustration with round, invented figures, not a benchmark and not a client result.

A storm week puts three jobs in the field. Each costs you $30,000 in labor, equipment and materials in the first few weeks. Carrier payment on each lands about 45 days after you mobilize.

• Cash out before the first collection: $90,000
• Cost to carry that $90,000 for 45 days on a line at an assumed 10 percent annual rate: about $1,100 ($90,000 x 10% x 45 / 365)

Pricing varies by lender and by your financials, so use your own quote. The point is the shape: carrying planned working capital is cheap next to the cost of the alternatives, which are late payroll, vendors who stop extending terms, or turning down the next job because you cannot fund it.

Planned borrowing versus emergency borrowing

Same bank, same product, very different experience.

Planned: you ask when your recent financials look steady, you have time to compare terms, and you set the limit against a number you worked out in advance. The line sits unused most months, which is how it should look.

Emergency: you ask when cash is already tight, your best numbers are behind you, the lender sees a company that needs money rather than one that is managing it, and you accept whatever terms arrive fastest. That is the version that feels like a fire alarm, and it is expensive and stressful for reasons that were avoidable.

One caution, since I would rather you hear it early. A line is a bridge, not a fix. If you are drawing on it every month and never paying it down to zero, the problem is not the line. It is margin, collections or pricing, and a larger limit will only postpone the conversation.

Four moves

1. Size it to your worst mobilization cycle. Take your largest realistic stretch of jobs mobilizing before the first collection, and add payroll and fixed costs for that period. A 13-week cash forecast shows you that peak instead of leaving you to guess it.
2. Arrange it before storm season. Apply in the quiet month, with clean monthly financials and receivables you can explain by carrier.
3. Price the carrying cost into your jobs. If you know a job ties up cash for 45 days, that time has a cost. Put it in your margin math, not just in the interest line.
4. Set a repayment rule. Decide in advance that carrier payments pay the line down first. A balance that never returns to zero is a signal worth reading.

Also check the terms with your own lender or advisor: fees, renewal dates, whether the lender can reduce the limit, and any covenants tied to your financial statements. Those details matter more than the headline limit.

Sizing the line, building the forecast behind it and keeping the books clean enough that a lender says yes is a large part of what a fractional CFO for restoration companies does. If you would like help doing it before the next storm, get in touch.

General education for restoration and reconstruction owners. The example is illustrative and is not lending, tax, legal or accounting advice for your company.

← Back to all posts