Commercial Construction Loans for Your Business

Commercial Construction Loans for Your Business

5 Construction Business Loans to Consider

Small business construction loans are used to finance large construction costs such as materials, on-site amenities, temporary machine parts, and crew wages. But, with so many small business loans available—short-term loans, bank loans, invoice financing—how do you know which is best for your construction company?

 

Your search will be aided by our list of the top construction business loans. These loans will suit different stages of your construction company’s development, so you can pick one based on the age, size, and loan eligibility of your business.

 

Quick Facts on the Best Small Business Construction Loans

Before we get into the specifics of each sort of best construction company loan available, let’s go over a short summary of any loans you might not be familiar with.

 

We’ll go over who the loan is best for and what kind of qualifications you’ll most likely need to get it.

 

Equipment financing 

• This is the best option for new construction companies.
• Your lender will advance you up to 100% of the money you need to buy the equipment, and the equipment will serve as security if you default on your loan.
• Unsecured loans are more difficult for young construction companies to qualify for.

 

Business lines of credit

• Excellent choice for expanding construction companies.
• Your lender grants you access to a set amount of money that you can use whenever you want and in whatever amount you need.
• You just have to pay interest on the money that you use.
• It could be either secured or unsecured.

 

SBA 7(a) loans

• It’s best for well-established construction firms.
• SBA 7(a) loans can only be used for SBA-approved use-cases, including as working capital, equipment purchases, or debt consolidation.
• Small company loans are more difficult to qualify for than other types of loans.

 

SBA CDC/504 loans

• It’s best for well-established construction firms.
• Bank loans backed by the government with payback lengths of up to 25 years.
• Only fixed assets, like equipment or machinery, are eligible for SBA 504/CDC loans.
• It can’t be used as a source of working capital.
• There are numerous eligibility requirements.

 

Business credit cards

• Best for construction enterprises at any stage, particularly owners who need to keep track of employee expenditures.
• Different cards are used for various purposes.
• Can be used as a short-term, interest-free loan with a flexible repayment schedule.
• Can assist you in keeping track of your spending and establishing credit for future business financing.

 

Construction Business Loans: The Top 5

Now, if you want additional information on our top five small business loans for construction companies, we’ve got you covered.

 

Depending on the stage of your building company, these are the best business construction loans.

 

1. Equipment Financing (Best for New businesses)

Whatever type of project your construction firm plans to embark on, it’s almost a given that you’ll need a lot of equipment to get the job done. However, because even a single piece of equipment is costly, newer construction enterprises may not have the means to purchase all of the tools they require to get started.

 

Equipment finance is a good option for a business construction loan. With an equipment loan, you present an estimate to a lender, and if approved, they advance you 80 percent to 100 percent of the money you need to buy the equipment.

 

You’ll repay your lender in regular installments, usually monthly, much like a traditional term loan. Your loan’s term is determined by how long the lender believes the equipment you’re borrowing against will be functional and valuable.

 

The fact that your lender uses the equipment as collateral sets this loan unique from many other types of business loans you may be familiar with. If you don’t pay back your loan, the lender will seize the equipment to cover their losses.

 

Because this is a low-risk business construction loan scenario, lenders aren’t as concerned with working exclusively with low-risk businesses—that is, established businesses with years of profitability and strong credit scores. As a result, getting a loan for equipment is a little easier for newer construction companies.

 

Requirements

• 600+ credit score
• 11+ months in the business
• $100,000 is the average revenue.
• Even if your company doesn’t match these rough minimum requirements, you may still be able to get equipment financing.
• Lenders are usually just as concerned with the equipment’s value as they are with your own creditworthiness. Borrowers with the strongest applications, on the other hand, will be eligible for the lowest interest rates on their loans, as is always.

 

Business Lines of Credit ( Best for growing businesses)  

Consider a business line of credit to be similar to a business credit card, but without the card and the incentives that typically come with a credit card. Essentially, your lender provides your construction company with a revolving line of credit, with an amount determined by your lender based on your company’s financial profile and personal creditworthiness.

 

You can borrow as much as you want from those funds, and you can get the money whenever you need or want it. You’ll only pay interest on the money you use. Furthermore, interest rates on business lines of credit are typically lower than those on business credit cards—unless you make late payments, in which case your interest rate will likely increase.

 

Most small businesses can benefit from business lines of credit, but construction companies, in particular, can benefit from their flexibility.

 

You may rely on this revolving resource to repair obsolete or broken equipment, acquire and educate a slew of new personnel, and maintain a cash reserve during seasonal dips, slow periods, or if a customer refuses to pay.

 

Business lines of credit can also be used as a fallback if you need to take advantage of unanticipated possibilities to expand your company. Even if you need to apply for a company term loan to finance large, one-time purchases in the future, you can keep a business line of credit on hand to bridge those cash-flow gaps.

 

SECURED LINES OF CREDIT – When it comes to obtaining a business line of credit, there is one more distinction to be aware of: secured vs. unsecured lines of credit.

 

Both lines of credit function in the same way: they’re revolving lines of credit that you may tap into whenever you need money, and you just pay interest on the amount you use.

 

Secured business lines of credit, on the other hand, are backed by a collateral asset. Invoices, cash, inventory, physical property, equipment, personal guarantees, and blanket liens are all examples of assets that might be used as collateral for a small business loan.

 

If a borrower fails on a loan, the lender has the authority to seize any asset specified in the loan terms to repay the amount. Because that safety net reduces the lender’s risk, a secured line of credit may be easier to qualify for than an unsecured line of credit. On a secured business line of credit, lenders may offer you better rates and terms.

 

UNSECURED LINES OF CREDIT – If you don’t want to put your assets at risk, an unsecured business line of credit can be a better option. As previously stated, unsecured business lines of credit function similarly to secured business lines of credit.

 

However, because the lender has no collateral to fall back on if the borrower defaults, unsecured business lines of credit (or any unsecured loan) eligibility standards may be more strict. Lenders will only issue unsecured loans to borrowers that they consider to be low-risk.

 

Requirements

• 550+ credit score
• Annual income: $100,000 or more
• Two or more years in the business
• These numbers will change depending on which lender you work with—and which sort of lender you engage with, as business lines of credit are available from both banks and certain alternative lenders. Bank business loans typically have higher loan amounts than other lenders, but they almost always have stricter requirements.
• You can expect line of credit amounts as low as $5,000 for the most qualified borrowers working with larger banks, or as high as $1 million for the most eligible borrowers working with smaller banks, depending on the financial institution you work with and your overall financial profile.

 

SBA 7(a) Loans (Best for established businesses seeking general financing)

 

If you’ve been in business for a long time and have solid financials, you might be eligible for an SBA 7(a) loan. SBA loans are issued by banks, despite the fact that they are backed by the US government. If a borrower defaults, the Small Business Administration will cover up to 85 percent of the loan amount.

 

Because this safety net decreases the lender’s risk, banks are driven to extend SBA loans to borrowers at exceptionally favorable conditions. Cheap interest rates, long repayment periods, high business loan amounts, and low down payments are all features of SBA loans.

 

The Small Business Administration (SBA) offers a number of lending programs, each with its own set of criteria and funding amounts. However, the SBA 7(a) loan is the most popular and versatile of these government-backed loans because it can be used for a wide variety of business purposes.

 

Despite the fact that banks are assured to be paid in some way, SBA loans are in high demand, so banks still have the option of choosing which borrowers they wish to work with. That means low-risk consumers with excellent credit scores and a track record of profitability over several years.

Established construction companies have the best chance of meeting all of the SBA loan requirements. However, if you do qualify for an SBA loan, you won’t find a larger loan amount or better terms anywhere else.

 

General Requirements

• Credit score: 650 or higher, however 700 or higher is preferable.
• $100,000+ in annual revenue
• At least two years in the business

 

SBA Requirements

• a company based in the United States
• a for-profit entity
• Time and money spent on growing your business should be documented.

Minimum eligibility requirements vary by lender, and while the SBA does not have a hard credit score requirement for SBA 7(a) loans, a higher credit score will always give you a greater chance of getting approved.

Keep in mind that your SBA loan application will require a significant lot of documentation, but the effort will be well worth it if you have a chance at one of the best loans available.

 

SBA CDC/504 Loans (Best for established businesses seeking financing for fixed assets)

 

You can get up to 90% financing and repayment terms of up to 25 years with SBA CDC/504 loans. SBA CDC/504 loans can be used to buy equipment or machinery, construct new facilities, or remodel existing ones, making them suitable for your construction business. You can’t use SBA CDC/504 loans for working capital because they’re designed for fixed assets.

 

This loan is made up of three parts, unlike typical SBA loans, and the CDC’s maximum contribution is $5 million. The bank’s contribution can be up to three times that of the CDC. Just keep in mind that you’ll need to put down 10% of the whole loan amount up front.

 

The CDC portion of SBA CDC/504 loans has one rate, but the bank portion has a different rate. The CDC’s interest rate is dependent on the current rate on US Treasury bonds, which is currently ranging between 3% and 6%. The interest rate on the bank portion can be fixed or variable, but it usually does not exceed 10%.

 

Additional payments, such as an SBA guarantee fee, CDC servicing fee, and a central servicing agent fee, should also be considered.

 

Requirements

• 650+ credit score
• Not more than $15 million in net worth
• For the two years before the application, average net income after federal income taxes could not exceed $5 million.
• The project must either create or retain jobs, or it must advance public policy objectives (e.g., diversify the local economy, assist manufacturing firms, expansion of exports)
• Among other general SBA loan requirements

 

Business Credit Cards (Best for all businesses)

 

Every firm, regardless of size, age, or sector, should utilize a business credit card responsibly for everyday purchases. We define responsibility as paying your monthly bill in full and on schedule.

 

For construction companies that may need to carry a balance from month to month to pay down extra-large bills, this can be a little challenging. Carrying a credit card balance, on the other hand, means paying a lot of interest, which might eat into your cash flow. Late payments on credit cards could also reduce your credit score.

 

As a construction or building company, you have a variety of business credit card options, and your method for selecting one will vary depending on your specific needs. Here are three different views on utilizing company credit cards to fund construction works.

 

American Express Blue Business Plus – You may use a business credit card with a long 0% intro APR period like an interest-free loan if you’re savvy about it. This strategy is exemplified by the American Express Blue Business Plus card.

 

On purchases, there is a 12-month 0% intro APR period with this card. That’s a year during which you can carry a balance without paying interest (after that, a variable APR based on your creditworthiness and the market Prime Rate will apply; check the issuer’s terms and conditions for more information).

 

This will allow you to charge a large purchase on your card and pay it off over the next 12 months, interest-free.

 

Of course, make sure you pay it back—you don’t want to end up paying interest on your credit card. However, if you can make a structure like this work for you, you can not only take advantage of the amazing introductory deal, but you can also develop credit in order to qualify for a terrific business loan program.

 

American Express Plum – If payment flexibility appeals to you, and you know you won’t need a full year to pay off a purchase, the American Express Business Plum Card will provide you with all of that—plus rewards and savings.

 

The Amex Plum is a charge card rather than a credit card. That implies you’ll be free to spend as much as you want on the card because there will be no credit limit. You’ll also get a 1.5 percent discount on every dollar you spend and pay off early if you have a full 60-day grace period from your due date to pay off your spending.

 

Because this is a charge card, there are steep late penalties, so if you don’t think you’ll be able to pay off your debt in full each month, this isn’t the card for you. However, if you think it’s perfect for you, Amex will waive the $250 yearly charge for the first year to give you a chance to see if it’s right for you.

 

Bento for Business – Try the Bento for Business card if you’re not ready to fully commit to a business credit card. The Bento is a prepaid debit card for businesses. You’ll fill the Bento with your own cash after securely connecting it to your business bank account, rather than receiving an assigned credit line from a card provider, as is the case with a genuine credit card.

 

You’ll never have a monthly balance to worry about, and you’ll never have to worry about paying on time. Using the Bento will have no effect on your own credit score, either positively or negatively—which also implies that no credit check is required when applying for a Bento card.

 

Bento, on the other hand, gives you all of the ease and control of a business credit card, plus more. To begin, your Bento account allows you to generate as many employee cards as you need on a sliding scale, allowing you to effortlessly distribute cards to your team.

 

You can also use Bento’s card-management tools, such as a mobile app and a dashboard, to keep track of, limit, and alter the budgets on all of your cards.

 

Bento will also integrate with any accounting software you’re using so you can see your spending patterns—and when it’s time for a real business credit card, you’ll know exactly what you’re spending and how much you’re spending.

 

Frequently Asked Questions

 

What are the requirements for a commercial construction loan?

Although the requirements for commercial construction loans will ultimately vary depending on the type of loan and the lender you’re working with, you can anticipate to need to meet the following criteria in general:

• A credit score of 600 or above is required.
• At least one year in business with a strong yearly revenue DSCR greater than one and the ability to offer a 10% to 30% down payment

 

How do I secure a construction loan for my business?

To qualify for a business construction loan, you must:

• Make a cost estimate for your construction project.
• Examine your company’s qualifications (credit score, time in business, annual revenue, etc.)
• Compare the various types of business construction loans and choose the one that best suits your demands.
• Find a lender who can provide you with the product you want and whose standards you can meet.
• Fill up your loan application with your documents (containing information about the project, costs, and builder).
• Complete the closing process after submitting your application and reviewing your loan agreement.

 

What is the minimum down payment for a construction loan?

Typically, a lender will require a down payment ranging from 10% to 30% of the overall cost of the building project you’re looking to finance.

 

In many circumstances, a lender will only finance 70%to 90% of the project’s cost, requiring you, the borrower, to contribute the remaining funds in the form of a down payment.

 

Having said that, while the down payment amount will vary depending on the lender and your company’s requirements, construction lenders often require a 20% down payment.

 

Final Thoughts

Sure, sorting through all of the available small business finance choices can be overwhelming. And it’s true that not all types of financing are appropriate for your building company.

 

On the other hand, with so many small business loans for construction companies accessible, you’re bound to find a funding option that suits your company and its needs—even as it develops and evolves.

Apply today with G-Force Funding for business lines of credit from $20,000 – $250,000.