What actually secures a materials line of credit for a rehab GC
Consider a general contractor running four to six investor rehabs at a time, average job cost $70k, whose clients pay on a draw schedule with inspection after completed work. That structure means the contractor fronts materials for two to four weeks on every job, and floating that on supplier credit and personal cards is a common and fragile pattern that eventually pushes a GC to look for outside working capital. A typical structure for a private lender stepping in might look like a $150k revolving line, draws only against purchase orders from named suppliers, 2 points on the facility, 1.5 percent per month on the outstanding balance, repayment within five days of the contractor receiving the corresponding client draw, a personal guarantee, and a UCC filing on the business. The collateral problem in a structure like this is real. Equipment might be two trucks with loans on them and a modest amount of tools. The actual asset is receivables from investor clients, and those receivables sit behind whatever the client's own hard money lender is doing. If a flip stalls and the investor stops funding draws, the contractor has already bought and installed materials into someone else's building. The real backstop is mechanic's lien rights, and lien priority, notice deadlines, and whether a lender can step into those rights at all vary significantly by state, which makes a construction attorney in that state essential before any facility like this is signed. An alternative worth considering is skipping the loan structure entirely and paying suppliers directly on joint checks, so the lender's money never sits in the contractor's account, even though it slows down ordering and contractors often resist it for that reason. Lending against a contractor's receivables rather than against a property tends to collect, when it goes wrong, only on what the mechanic's lien actually secures.
