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Small Business Construction Loans

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Small Business Construction Loans

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Business Loans for Building Construction

What is a construction business loan?

Construction loans can be described in two different ways.

The first is a loan for construction business to leverage in order to finance projects for customers. From equipment to labor and materials the cost of construction is high and usually, construction companies are not paid upfront. Therefore, they may need access to funds to cover project costs. 

The second is a loan that businesses can use to fund building operational space. Undoubtedly, businesses need a functional space to do business in. Construction loans can create the opportunity to build that space from the ground up. Unique for their funding and repayment process, construction loans can help businesses build locations to conduct business from. Since it can take some time to build the space before profiting from it, construction loans offer some degree of flexibility. Most of the time funds are disbursed to fund the various phases of construction. Repayment periods can vary but sometimes the construction loan can be converted into a commercial real estate loan or long-term mortgage. There are other types of business loans as well that can be used for building commercial property. 

How do construction business loans work?

Lenders take on a bit of risk when lending construction loans. In most cases, the loan is issued before there’s an existing property, and that’s where the risk increases. To offset some of the risk, a down payment is usually required for construction loans. Some construction loans carry short repayment periods ranging from 6-24 months while others can be converted into long-term loans with repayment periods spanning 15-30 years. With most construction loans, funds are not issued as a lump sum but rather in disbursements according to construction plans submitted at the beginning of the loan or during approval. 

Construction companies leveraging loans usually use short-term construction loans. Once they complete the project and are paid they can repay the loan. A business line of credit can be another smart way for construction companies to fund projects. 

Can I get a loan for a construction business?

Just as retail businesses can use a construction loan, construction businesses can too. Construction businesses often face high project costs, thus forcing them to find ways to fund materials and labor. Cash flow is a challenge for many businesses, including construction businesses. Since projects are usually not paid for entirely upfront, a construction loan can be used to fund the project. 

What construction loans cover and don’t cover

Construction loans are typically exclusive to construction loan costs such as permits, labor, and materials. In some cases it can be used for the land too. Spending restrictions can vary depending on the lender. You should determine how much you need to borrow and how the funds will be allocated. You can then work with the lender of your choice to ensure you will be able to use the funds as needed.

How can I use a construction loan for my business?

Construction business loans are usually restrictive. During the approval process the business will likely need to submit official construction plans. If approved, the lender can disburse funds according to the project timeline. Construction loan funds are usually exclusive to project costs and may even be paid directly to the contractor or construction company. Check with the lender of your choice to understand any restrictions that may be present. 

How can I finance my construction business?

Construction businesses generally profit largely off large projects. In order to complete the projects, construction companies need to be accessible and have the equipment, skill, and labor to execute. From loans to help fund projects to general business loans to fund operational activities, construction business loans can help construction businesses grow. Before applying for financing, construction companies should check their SMB (small-medium size business) score to identify opportunities to improve their financial standing through the eyes of a lender. When ready, construction companies can also access personalized loan offers through our platform.

How much do commercial construction loans cost?

The cost of a commercial construction loan can vary depending on several factors. The best way to determine the cost of a commercial construction loan is to determine how much you need to borrow and if you qualify for that amount. If you qualify, compare offers and note the total loan cost to determine what the loan could actually potentially cost. 

Can a contractor get a business loan?

Licensed contractors with an established and legitimate business can get a business loan if they qualify. As any other type of business, contractors must meet the minimum requirements at the very least in order to receive loan offers. Furthermore, they’ll need to undergo the underwriting process for approval status. Contractors can use a business loan for marketing, payroll, equipment, and other business related activities. 

What credit score do banks use for construction loans?

When applying for a business loan or construction loan, lenders will usually use a business and or personal credit score. While business owners are often familiar with their personal credit score, a business credit score may be new territory. To better understand your business credit score and what it’s made of, visit mySMBscore. 

How to get a construction business loan

A few basic steps involved with getting construction business loans usually include the following. 

  1. Determine how much you need to borrow
  2. Check your SMB (small-medium sized) business credit score
  3. Identify ways you can boost your chance of approval
  4. Clearly outline how funds will be spent
  5. When ready, compare offers 

What is the minimum down payment on a new construction loan?

Most construction loans will require a down payment. You can expect to find down payment requirements to vary between 20%-25% of the cost of the build or appraised value. 

What are the requirements to get a construction business loan?

Meeting the requirements set forth by a lender is key to qualifying for a construction business loan. From requirements specific to the business to construction plans, requirements can vary, but their importance remains high.Requirements can include but are not limited to the following:

  • Business and or personal credit score
  • Debt-to-income ratio
  • Annual revenue
  • Minimum time in business
  • Collateral
  • Down payment 
  • Construction plans 
  • Required documents

How can I use a construction loan for my business?

How you can use a construction loan can vary depending on the lender’s spending restrictions. In most cases funds will be restricted to the construction project according to the plans submitted upfront. Construction loans are generally intended to cover labor, materials, equipment, and other related costs. Construction businesses that need funding for other operations can consider a general business loan, business line of credit, or alternative funding option. 

How hard is it to qualify for a construction loan?

Qualifying for a business loan comes with requirements. With construction loans generally being of higher dollar amounts, requirements can be even more strict. To improve your chance of qualifying visit mySMBscore, unlock your business credit score and view valuable insights. Our platform helps you understand how lender’s view and assess the risk associated with loaning money to your business. As a result, you can take action to be a more attractive applicant.

How to qualify for a construction business loan

To qualify for a construction loan, start by checking your SMBscore. Next, determine how much you need to borrow and what the project timeline will be. When ready, compare offers using our secure platform designed to help business owners make better business decisions.

Types of construction business loans

While construction loans are general type of loan, there are other types of loan that can be used for construction and operational costs. Examples can include the following. 

  • Construction loans 
  • Traditional term business loan
  • Business line of credit 
  • Asset or revenue-based financing 
  • Equipment financing 

Alternatives to Construction Loans

The restrictiveness that usually comes along with construction loans leaves business owners looking for other options in some cases. There are other types of loans that can be used to help fund construction costs such as equipment financing or a business line of credit. Construction companies can benefit from having access to a line of credit that they can draw from as needed. Alternative types of financing can be used to cover costs associated with financing to free up cash to cover the construction project itself. 

How to apply for a construction business loan

When preparing to apply for a construction business loan you’ll want to make sure your business is well positioned. When ready, you’ll need to start shopping lenders to determine who can make the best construction loan offer. During the approval process you’ll likely need to provide important information about the construction process. While approval is not guaranteed, you’ll likely want to work with a construction company prior to gathering estimates and timelines. 

When you’re ready, here are 3 steps to take to apply for a construction business loan

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