To start a general contractor business in the US you need three things in place before your first paid job: the license and insurance your state and county require, enough working capital to float materials and payroll until the customer pays, and a legal entity plus bank account to run the money through. Licensing is the gate most people underestimate, but cash flow is what actually kills new GCs — you buy the materials and pay the crew weeks before the draw or the final check clears, and that timing gap is where undercapitalized contractors fold. This guide walks the real startup sequence, what it costs, and the honest funding options for a business with no two-year track record, including revenue-based financing that approves on your bank deposits rather than your credit score once the first jobs start landing.
Key takeaways
- General contractor licensing is set at the state and often county level, not federally — Florida, California, and most states require a licensed qualifier, proof of experience, and a passed trade/business-law exam before you can pull permits.
- Realistic cash startup for a small residential GC runs roughly $15,000-$75,000 (for example) once you add license bonds, general liability insurance, tools, a truck, and working capital — the license fee itself is the small part.
- The single biggest cash risk is the material-and-payroll gap: you fund the job, then wait 30-60 days (or for the next draw) to get paid.
- Banks and the SBA rarely fund a contractor with under two years of filed returns, which is why most new GCs bootstrap or use revenue-based financing after the first jobs generate deposits.
- Revenue-based financing / MCA marketplaces approve on business bank deposits and revenue rather than credit, typically want FICO 500+, fund from about $10,000, and can advance in 24-48 hours.
- No legitimate funder can 'guarantee' approval — anyone promising guaranteed funding before seeing your bank statements is a red flag.
- A separate business bank account from day one is what makes you fundable later; commingled personal and business money makes revenue impossible to verify.
The startup sequence, in the order that actually matters
Skipping steps here is what gets new contractors fined or unable to pull permits. Run it in this order:
- Form the entity. Most GCs use an LLC or S-corp for liability protection. Get your EIN from the IRS (free) and register with your state.
- Open a dedicated business bank account. Do this before your first dollar of revenue. Every deposit that runs through it becomes proof of revenue later — that history is exactly what a revenue-based funder reads.
- Get the license. This is state- and often county-specific. Expect a required qualifier with documented experience (frequently 2-4 years), a trade and business-law exam, and proof of financial responsibility. Some states verify net worth or require a credit check for the license itself.
- Bond and insure. A license/surety bond is usually mandatory; general liability is expected by nearly every customer and GC you sub under; add workers' comp the moment you have employees (required in most states even for one W-2 worker).
- Line up working capital. Before you bid, know how you will float the first two or three jobs' materials and payroll. This is the step most first-timers leave to chance.
Only after these are done should you be bidding real work. Pulling a permit or hiring a crew without the license and insurance in place is the fastest way to a stop-work order.
What it really costs to open the doors
The license application fee is rarely more than a few hundred dollars — it is everything around it that adds up. Below is an illustrative breakdown for a small residential general contractor. Treat every figure as "for example"; your state, county, and trade will move these numbers.
| Startup item | Example one-time cost | Example ongoing |
|---|---|---|
| Entity formation + EIN | $100-$800 | State annual report |
| License exam, application, fingerprints | $300-$1,000 | Renewal every 1-2 yrs |
| Surety / license bond | Premium on $10k-$25k bond | Annual premium |
| General liability insurance | Deposit | ~$1,000-$3,000/yr |
| Truck, trailer, core tools | $8,000-$40,000 | Fuel, maintenance |
| Software, website, marketing | $1,000-$4,000 | Monthly |
| Working capital (materials + payroll float) | $10,000-$50,000+ | Rebuilds each job |
Notice where the real money is: not the license, but the truck and the working-capital float. You can buy a used truck cheaply; you cannot skip the float. If you win a $60,000 remodel, you may need to spend $20,000 on materials and two payrolls before the customer's draw hits your account.
Why banks and the SBA usually say no in year one
New contractors routinely apply for an SBA 7(a) loan or a bank line of credit and get declined, and it is not personal. Conventional and SBA lenders underwrite on filed business tax returns, typically two years of them, plus strong personal credit and often collateral. A business that started four months ago has none of that. Construction also carries a higher perceived risk profile with banks because of project concentration and payment disputes.
That leaves new GCs with a narrow set of real options: personal savings, a home-equity line if you own property, equipment financing for the truck specifically, supplier trade credit (net-30 accounts at the lumberyard and supply house), and — once deposits start flowing — revenue-based financing. The honest sequence for most is: bootstrap the first jobs, build a few months of bank deposits, then use those deposits to unlock faster capital for growth.
For the broader menu of options once you're generating revenue, see our business funding guide and our breakdown of working capital financing.
How revenue-based financing works for contractors
Once your business bank account shows a few months of real deposits, a revenue-based financing marketplace becomes the most accessible fast-capital option for a new GC. The model is simple: the funder looks at your recent business bank statements and your monthly revenue, not primarily at your credit score. If the deposits show a real, functioning business, you can be approved.
Typical parameters through a revenue-based / MCA marketplace: funding from about $10,000, a minimum FICO around 500, decisions and funding often within 24-48 hours, and repayment tied to your cash flow — usually a fixed daily or weekly amount, or a percentage of deposits — rather than a rigid amortized bank note. A marketplace matters here because a single lender gives you one answer; a marketplace shops your file across multiple funders to find one whose criteria and payment structure fit a lumpy construction cash cycle.
Think of it as bridge capital, not permanent capital. It is priced for speed and access, so it earns its keep when it lets you buy materials for a job that pays you back inside the same cash cycle. It is not the tool for a purchase whose payoff is a year out. And no legitimate funder guarantees approval before reviewing your statements — treat "guaranteed funding" as a reason to walk away.
Decision framework: when revenue-based financing fits, and when to avoid it
Use the money where the timing works for you, not against you.
It works best when:
- You have a signed job in hand and need to buy materials or cover payroll now, with a draw or final payment arriving inside weeks.
- Your business bank account already shows several months of consistent deposits — that is what gets you approved and priced fairly.
- The advance closes a short, self-liquidating gap: you spend it on a job that repays it in the same cash cycle.
- A bank or SBA loan would take weeks you don't have and you'd lose the job waiting.
Avoid it when:
- You have no signed work yet and are borrowing to "get started" — that is speculation on the funder's dime and yours.
- Your margins are thin or unknown. If you don't know your true job cost, the fixed payment can outrun your cash flow.
- You'd use it for a long-payback purchase (a second truck, a shop lease) — match that to equipment financing or a term loan instead.
- You're already carrying an advance and would be stacking a second one to make the first payment. That spiral is how contractors bury themselves.
The clean test: if the borrowed dollar produces revenue faster than the payment schedule pulls it back out, it fits. If not, it doesn't.
A realistic first-year cash-flow picture
Here is an illustrative timeline showing why the funding question is really a timing question. Figures are examples only.
| Stage | Cash out | Cash in | Where the gap bites |
|---|---|---|---|
| Months 1-2: setup | License, bond, insurance, truck, tools | None yet | All bootstrap / savings |
| Month 3: first small jobs | Materials + own labor | Job payments on completion | Manageable if jobs are small |
| Months 4-6: first crew, bigger jobs | Materials + weekly payroll | Draws / final checks lag 30-60 days | Peak gap — biggest failure point |
| Months 6-12: deposits established | Ongoing job costs | Steadier deposit history | Revenue-based financing now available to smooth peaks |
The lesson underwriters see repeatedly: the danger zone isn't month one, it's months four through six, when you've grown enough to carry payroll and material bills but the receivables haven't caught up. That is precisely the gap revenue-based financing is built to bridge — after you have the deposit history to qualify.
Setting yourself up to be fundable later
The habits that make you approvable are free and start on day one:
- Run everything through the business account. Commingled money is unverifiable money. Clean, consistent deposits are your credit.
- Keep a positive daily balance and avoid overdrafts / NSFs. Funders read your statements line by line; frequent negative days sink applications faster than a low FICO.
- Build supplier trade credit early. Net-30 accounts at your supply houses reduce how much cash you need to float and build a payment reputation.
- Know your job costs cold. A contractor who can state real margins gets better terms and makes smarter borrowing decisions.
- Don't over-apply. Scattering applications across many lenders at once looks desperate. A marketplace submits one file to multiple funders, which protects you.
Do these from the start and by month six you're not begging for capital — you're choosing between offers.
Frequently asked questions
Do I need a license to start a general contractor business?
In almost every state, yes — and it's set at the state and often county level, not federally. Most states require a qualifying individual with documented experience, a passed trade and business-law exam, proof of financial responsibility, and a surety bond before you can legally contract for work or pull permits. A few states have lighter requirements at the local level, but operating without a required license risks fines, voided contracts, and stop-work orders. Check your specific state contractor licensing board first.
How much money do I need to start a GC business?
For a small residential general contractor, a realistic cash range is roughly $15,000 to $75,000 (for example), depending on your state and whether you buy or already own a truck. The license fee is a small piece; the real costs are the bond and insurance, tools and vehicle, and — most importantly — working capital to float materials and payroll before customers pay. Underestimating that working-capital float is the most common early mistake.
Can I get funding to start with no revenue and no track record?
Startup funding with zero revenue is hard and mostly limited to personal savings, a home-equity line, equipment financing for the truck, and supplier trade credit. Banks and the SBA typically want two years of filed returns. Revenue-based financing is not a true startup product — it approves on your business bank deposits, so you generally need a few months of real revenue in a dedicated business account before you can use it. The practical path is to bootstrap the first jobs, then use the deposit history to unlock faster capital.
What credit score do I need for revenue-based financing?
Revenue-based financing and MCA marketplaces are far more flexible than banks, typically looking for a FICO around 500 or higher. The heavier weight is on your business bank statements and monthly revenue, not your credit score. That's what makes it accessible to newer contractors whose credit isn't strong enough for a conventional loan yet.
How fast can I actually get funded?
Through a revenue-based financing marketplace, approval and funding often happen within 24-48 hours once you submit recent business bank statements. That speed is the whole point for contractors — it lets you buy materials for a signed job without losing it to a weeks-long bank underwriting process. Be wary of any funder that promises 'guaranteed' approval before reviewing your statements; no legitimate funder can guarantee approval.
How much can I qualify for?
Revenue-based financing generally starts around $10,000, and your ceiling is driven mainly by your monthly deposits and revenue — funders size the advance to what your cash flow can comfortably support. A contractor with stronger, steadier deposits qualifies for more. A marketplace can shop your file across multiple funders to find both the amount and the payment structure that fit a construction cash cycle.
Is a merchant cash advance a good idea for a contractor?
It depends entirely on timing. Revenue-based financing and MCAs are priced for speed and access, so they work well as short-term bridge capital — buying materials or covering payroll on a signed job that pays you back within the same cash cycle. They're a poor fit for long-payback purchases like a second truck or a shop lease, which should be matched to equipment financing or a term loan. The rule: if the borrowed dollar generates revenue faster than the payment pulls it back, it fits; if not, avoid it — and never stack a second advance to make payments on the first.
When should I use a bank or SBA loan instead?
Once you have two years of filed tax returns, solid personal credit, and time to wait weeks for underwriting, a bank line of credit or SBA loan will almost always be cheaper for longer-term or larger needs. The tradeoff is speed and eligibility. Many established contractors use both: a bank facility for planned, long-horizon needs and revenue-based financing to bridge short, job-specific cash gaps that can't wait.
