If a contractor has temporary cash-flow problems, what is a good way to get through the crisis?

If a contractor has temporary cash-flow problems, what is a good way to get through the crisis?

• A. Borrow from a friend
• B. Use funds from a retirement account
• C. Delay payments to suppliers
• D. Use funds from a pre-established line of credit

Answer: (D)

When a contractor faces a temporary cash-flow crunch, tapping a pre-established line of credit provides a safe, flexible bridge to keep operations running. It gives immediate access to funds up to the agreed limit, with terms you already know, so you can cover payroll, materials, and other short-term needs as AR comes in. You’re paying interest only on what you borrow, not on unused credit, and you can borrow and repay multiple times as cash flow shifts, which helps you align cash inflows with outflows without disrupting operations. This approach also preserves supplier relationships and project schedules—delaying payments or using personal assets risks penalties, damaged credit terms, and strains with vendors or lenders. In contrast, tapping retirement funds can trigger taxes and penalties and undermines long-term financial security, while borrowing from friends can strain personal relationships. Using a line of credit keeps the business financially healthy during the hiccup and supports a quicker, smoother recovery.