Construction projects don’t always go as planned for small business owners. Additional expenses can arise, like the need to purchase equipment or supplies. Various circumstances – from new investors to county codes to inclement weather – can delay the project’s start date. As if this didn’t put enough pressure on cash flow, contractors in the construction industry often do not get paid until they reach certain project stages.
United Capital Source has access to business loans for construction companies and contractors to obtain the business credit they may need to complete projects on time while covering operational expenses in the interim.
Construction business loans are small business loans geared towards cash flow cycles and construction contractors’ periodic expenses. In addition to covering shorter-term needs and larger purchases, these loans can bridge revenue gaps until compensation comes in. Construction loans can be used to purchase land, buy materials, and pay workers.
Small business loans for a construction company can take the form of:
Each product listed above can suit a different type of expense or cash flow issue. For example, let’s say a business owner needs a little extra money to purchase more supplies or new equipment or cover payroll until the project’s next phase is complete. Logical solutions to these construction company dilemmas include a short-term working capital loan or business lines of credit.
The decision typically depends on how long it will take you to repay the loan amount and the likelihood of needing a construction loan again soon. Sudden expenses and cash flow shortages are prevalent with construction businesses. Thus, a business construction line of credit would prevent you from applying for more funding every time you cannot cover a short-term expense. A business credit line for construction is typically revolving credit. With a business line of credit for construction companies, you only pay interest on the funds you use.
Maybe you’ve just completed a project, and you’re looking to ramp up for your next one. However, compensation isn’t scheduled to come in for a few weeks. In this case, it might help to consider construction invoice factoring. The small business loan provider purchases the account for a discount price and then assumes the responsibility of collecting from your customer. Once the payment is collected, you receive the remainder from the initial sale, minus fees.
A construction firm should also decide if it wants secured or unsecured loans. Secured loans are backed by collateral, while unsecured loans don’t require collateral. Secured loans are more common in the construction market, but several lenders provide unsecured construction loans. This is essential when deciding on the best loan program for your needs.
Contractors and construction companies may consider SBA loans for long-term projects. The US Small Business Administration provides guidance on these loans but doesn’t fund them directly. The most common SBA construction loans are SBA 7(a) loans and SBA 504 loans, which provide funding for major fixed assets.
SBA loans for construction companies are guaranteed by the SBA, reducing the risk to lenders. SBA loans can take weeks or months to process and have strict eligibility requirements. SBA financing provides low-interest loans with stable monthly payments, but also carries a high down payment requirement.
A commercial construction loan helps cover costs associated with building or renovating structures. Commercial construction loans usually follow a draw schedule, where disbursements are tied to specific milestones in a project. Interest payments on commercial construction loans can be interest-only during construction. Making interest-only payments saves on costs during the construction phase, but typically has a balloon payment at the end of the project.
It’s important to note that construction loans can be designed to solve multiple problems. You might need to hire more workers, pay vendors upfront, or obtain special permits for the same project. We can tailor your loan amount and terms to accommodate each expense of your contracting business, even if they occur at different intervals.
| LOAN TYPES | MAX AMOUNTS | RATES | SPEED |
|---|---|---|---|
| Merchant Cash Advances | $7.5k – $1m | Starting at 1-6% p/mo | 1-2 business days |
| SBA Loan | $50k-$10m | Starting at Prime + 2.75% | 8-12 weeks |
| Business Term Loan | $10k to $5m | Starting at 1-4% p/mo | 1-3 business days |
| Business Line of Credit | $1k to $250k | Starting at 1% p/mo | 1-3 business days |
| Receivables/Invoice Financing | $10k-$10m | Starting at 1% p/mo | 1-2 weeks |
| Equipment Financing | Up to $5m per piece | Starting at 3.5% (SBA) | 3-10+ business days |
| Revenue Based Business Loans | $10K – $5m | Starting at 1-6% p/mo | 1-2 business days |
Construction businesses grow by taking on increasingly complex but lucrative projects. Thanks to construction loans, you can say “yes” when your cash flow would otherwise force you to say “no.” In other words, you don’t have to let mounting expenses, long gaps between compensation, or delays in start dates prevent you from accepting critical opportunities.
Cash flow shortages can make it difficult to retain employees and build loyalty. This is one of the biggest challenges for construction businesses. Construction loans ensure you can always pay your employees on time, even when projects get delayed. After all, a larger team allows you to take on larger projects.
You don’t need entirely consistent cash flow, a substantial bank balance, or excellent personal credit to be approved. You can still get funded in days, even if most of your operating capital is compromised.
For this reason, many contractors take out small business loans during the slow season to maintain funds to prepare for the busy season. In this case, we wouldn’t suggest a construction loan that requires a sizable payment shortly after money is distributed.
Although there are many advantages to getting a construction loan, many small business owners balk at the prospect of getting into too much debt. As stated, receivables in the construction and contracting business can be inconsistent. With so many factors out of your control, predicting when you may receive payment for services is tough. Adding a loan payment to the mix might do more harm than good in some cases.
If your business or personal credit isn’t optimal, the best construction SBA programs may be unavailable. An SBA generally requires excellent credit because you’ll receive the best interest rate and loan terms up to 25 years in return. Some programs allow you to use real estate as collateral to help obtain an SBA loan.
Pros:
Cons:
The amount of paperwork required for the application process depends on your chosen product. Funds can be approved and distributed for most products in up to three business days. To get started, here’s how to apply:
Let’s get started. The first step is choosing the most sensible solution to the problem at hand. This should require a decent amount of research, as each product is designed for different types of expenses and cash flow cycles. Are you looking to cover a short-term or long-term cost? What is the project’s billing schedule? Considering the financial purpose will also help us determine the best lender and terms for your needs.
Here are the documents and information required for all construction loan types:
SBA Loans require additional documents and information. Visit our SBA Loan page to learn what’s needed for the application.
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Once you apply, a representative will contact you for a one-on-one consultation to explain your options, repayment structure, rates, terms, and conditions. This way, you won’t have to worry about surprises or hidden fees during repayment.
If and when approved, funds should appear in your bank account within 1-3 business days. For SBA Loans, it usually takes 3-5 weeks to receive funding.
Your construction business loan isn’t just a way to get financing for businesses. It’s also an excellent opportunity to start building (or improving) your credit.
Regardless of the type of construction loan you get, make all of your required payments on time and in full to the lender. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit.
Consistently making your payments will positively impact your credit. And that means preferred interest rates and terms when you next need business financing.
After assessing your business’s financial health, a lender may conclude that a construction loan would harm your cash flow more than reasonably. In this case, we might recommend another tool for financing your small business, like a business credit card or personal loan. The business credit card and personal loan options are usually much easier to qualify for than small business loans. If you apply for business credit cards, you may not get the credit limit you need right away, but you can use a credit card as a tool to increase your credit scores.
To improve your credit score as much as possible before applying, you should consider credit repair services. We can help you identify the issues that keep your credit score down and develop practical solutions for eliminating them.
Construction contractors don’t usually need financing because they aren’t getting enough work. It’s because they are getting more work than their current resources and the cash flow cycle will allow. Construction projects are becoming increasingly complex.
They require more advanced equipment, to pay more workers, and more time. That means more upfront expenses and more time until you receive compensation. Even if you could afford these expenses, you’d have very little funding left over to use until your first billing phase. This could be weeks or even months away.
Also, when you take on more projects, you have more bills to manage. It’s challenging to stay on top of your payments when your primary concern is completing the project in a timely fashion. Construction financing helps alleviate these issues.
Construction contractors can finance projects with a myriad of business financing products. The product you choose depends on what you qualify for and how much funding you need. Commercial construction loans typically finance between 70% and 90% of a project.
If you’re looking for a significant amount, banks and credit unions carry the cheapest products with the longest terms. However, bank loans for construction often have stringent qualification requirements. You’ll need excellent credit, perfect cash flow, plenty of money in the bank, and collateral such as real estate. You can still access substantial financial programs through companies like United Capital Source if you can’t meet these requirements.
Banks and credit unions also prefer to lend more substantial amounts. Online lenders often have less stringent qualifications. Thus, companies like United Capital Source will be more willing to work with you if you’re looking to cover payroll, supplies, or other operational costs. The size of your desired funding will not make you less likely to earn approval.
Hard money lenders provide short-term funding options for commercial construction projects and have less stringent qualification requirements than banks. Commercial mortgages are commonly repaid over 5 to 20 years, while short-term lines of credit can often be repaid in 6 months or less. Construction-to-permanent loans allow borrowers to convert their construction loan into a permanent mortgage after completing the project.
At United Capital Source, we have access to new or used equipment financing for terms of up to five years. The terms and conditions for new or used construction equipment financing usually reflect the equipment’s relevance. If we offered longer terms, someone could make payments long after the equipment has become irrelevant.
Yes, several of the products mentioned above are accessible for borrowers with bad credit. Because bad credit makes you more likely to default, your interest rates may be higher, and your terms may be shorter.
However, if you have strong financial statements and cash flow or can provide collateral, your bad credit may impact your rates and terms less. We can customize your terms and payment frequency to ensure you can make payments while staying current on other bills.
The only option that is not accessible with less-than-perfect credit is SBA Loans. Compared to other products, SBA loans have higher borrowing limits, lower rates, and longer terms. If you have bad credit, you’ll receive shorter terms to ensure you repay the loan in full. Most lenders require credit scores of 650 – 700+ to qualify for SBA loans.
Fraud Disclosure:
Please be aware that individuals have been fraudulently misrepresenting to business owners (and others) that United Capital Source, Inc. (“UCS”) can assist small businesses in receiving government grants and other forgivable business loans, when in fact those grants or loans do not exist or are not available. These individuals have ulterior motives and are engaging in the unauthorized use of the names, trademarks, domain names, and logos of UCS in an attempt to commit fraud upon unsuspecting small business owners.
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