Construction Business Loans Explained
Now that you’ve seen the funding options available for construction business loans, it’s time to delve deeper into the specifics of each loan.
If there is a building or renovation project that you want to undertake and you don’t have the initial funding to get you started, you may wish to apply for a commercial mortgage. Typically, once you reach your first milestone, and receive your first payment from your client, you will need to repay a portion of the construction loan before you can receive more funds. In this way, if your project stalls or stops, both you and the lender are protected.
You will only receive payment from certain construction contracts once you reach specific milestones. Commercial mortgage loans can help you cover the expenses of your first few client contracts until you have enough funds to cover the contracts yourself. However, lenders will generally only pay you a certain percentage of the total loan amount per project deliverable. You may wish to use your client’s income installments to cover the interest payments.
PayPal Working Capital has a unique platform that lets you develop your loan online. You can play with several options until the funding terms suit your business plan. Furthermore, PayPal will allow you to borrow up to $500,000 without early repayment fees.
Equipment financing can help you purchase equipment for your new construction business. You can receive up to 100% of the funds upfront to buy all the machinery and tools you need and you will likely be granted a generous repayment period. However, there are cases where lenders may ask for a down payment, or they may take your assets if you fail to pay.
Before you even find your first client, you’re going to need vehicles, machinery, tools, and equipment. When a client appoints a contractor, they want to see your assets portfolio to see if you can cope with the workload. Some construction contracts will have specific requirements for how many trucks and tools you will need for a project.
Fundera specializes in equipment financing. This loan provider is also willing to work with new companies that have no former experience or track record. It has an excellent reputation for being transparent, and it works closely with its clients.
Small Business Administration (SBA) loans have government backing for financial approval. You can only obtain this funding through approved lenders, with the government guaranteeing 85% of the total loan amount. You’ll find that SBA loans have competitive rates and low monthly repayments.
SBA loans can provide you with the working capital you will need for the first year. You can use it to purchase land, equipment, vehicles, and machinery. Of course, you’ll need to ensure that you apply for the correct SBA loan category.
SmartBiz is an approved SBA lender with sufficient industry knowledge to guide you on the loan options that will suit you best. It has better repayment terms and rates than most of its competitors. The turnaround time for approvals is fast, so you’ll have quick access to your funds.
When working on a construction project you may need to make daily purchases. You may also need to deal with emergencies. At times you won’t want to use your capital or operating budgets to deal with emergency costs or daily payments. A business line of credits acts as revolving credit, providing you with funds you require when you need it, and you will only pay interest on what you draw.
Generally construction projects require additional purchases during a project’s lifespan. Given that you’ll only receive income after specific milestones, it’ll be handy to have a constant funding source when things go wrong. You can also use a business line of credit to repair or replace broken machinery and equipment.
BlueVine is our recommended lender for business line of credit for construction business loans. BlueVine approves finances quickly, giving you access to your funds at all times. You can also manage the remaining repayments and credit via the client portal.
Invoice financing is where a lender buys your outstanding invoices and takes a percentage from the income, as payment, once your customers pay. Invoice factoring is helpful when there are long payment clauses and you need cash flow for the month ahead. With invoice factoring, you won’t have long repayment periods or high-interest rates to worry about.
Many construction contracts have long payment periods, generally between 30 and 45 days. They also have workers and utilities to take care of. Invoice factoring can provide you with access to funds while you wait to receive your payments.
Fundbox offers loans based on your existing invoices. Fundbox distributes funds quickly. You also don’t need a high credit score to qualify.
Business owners looking to give their companies a financial injection through a loan that can be easily repaid usually turn to short-term loans. They are much easier to get and repay with as little fuss as possible.
Fora Financial is recommended to any construction business that needs to pay for any raw material purchases, investment in new equipment, or miscellaneous monthly expenses. Fora offers flexible payments on loans between $5,000 and $500,000.
There is no need to have any collateral to qualify for a loan from Fora Financial and quick repayments get rewarded with discounts. Applicants do not have to wait weeks to find out if their loan was approved - this is typically taken care of within 24 hours. Upon approval, Fora will pay the loan amount into the company’s bank account in three days.