Construction business loans have been hard to come by since the financial crash of 2008. But there are still funding opportunities available if you know where to look. Whether you need funds to purchase equipment, secure office or showroom space, expand your operations, or take advantage of a big job opportunity, there are options to suit your needs. In this article, we look at 5 different ways to finance your construction business.
1. Construction Business Loans from Traditional Banks
If you’re considering your options regarding construction business loans then traditional banks may be your first port of call. Most of us are familiar with them because they’re where we hold our personal accounts and withdraw cash on a day-to-day basis. It makes sense that they’d be inclined to support existing customers with their business financing too, right?
Unfortunately, this isn’t the case in reality. Although traditional banks do offer business loans, most of them are hesitant to offer financing to the construction industry. In the aftermath of the 2008 financial crisis, construction companies were hit hard with many going under and defaulting on bank loans.
This means that you’ll need a near perfect credit score and several years of spotless trading history to be in with a chance of securing funds. It’s not impossible and you’ll often find that the rates are competitive if your business has the right background. However, for most construction businesses it’ll be faster and more economical to seek construction business loans through other avenues.
2. SBA Loans for Contractors
Loans from the Small Business Administration (SBA) offer great low rates and competitive repayment terms. This makes a great option from a financial perspective, however, they are renowned for being incredibly difficult to secure. There is a vast volume of paperwork involved so you’ll need to have copies of all of your financials, certificates, and other formal documentation in advance.
The application process also takes a long time, so many construction business owners wait weeks only to find out that they’ve been rejected. This can be particularly frustrating given the time you invest in making the initial application. If you have a solid trading history and can afford to wait, then SBA loans are a practical option. But, if you need the funds quickly then they probably won’t be suitable.
3. Commercial Mortgages
Are you considering construction business loans as a means to purchase office space? Or open a showroom that displays your construction capabilities and workmanship? If the money will be used to secure property, then a commercial mortgage may be a better alternative.
Commercial mortgages are usually a longer-term form of borrowing that can offer cheaper rates (depending on the lending institution). The money is secured against the property which means you don’t need to put up personal collateral like your house or car. Property often increases in value over time which can make it an attractive investment for commercial businesses. You may be left with positive equity if you sell in the future which allows you to profit from the property after paying off the mortgage.
4. Equipment Leasing & Financing for Construction Businesses
If you’re looking at construction business loans to buy machinery or equipment, then there are specialist funding options available. Equipment financing is available to cover the cost of purchasing new equipment or replacing existing machines. In some cases, you can also lease the equipment instead of buying it outright which may have preferential advantages in terms of tax and depreciation.
One thing that is unique about equipment financing is that it uses the machinery as collateral. If you fail to keep up repayments, then the equipment will be taken away and auctioned off to repay the outstanding debt. This is different from construction business loans which may require your house, commercial property, or car as security. For some contractors, equipment financing or leasing may be a less risky way to borrow money for essential tools and machinery.
5. Business Lines of Credit
Business lines of credit can also be a practical alternative to construction business loans. Once approved, you’re able to draw on the money when you need it but won’t pay any fees if you don’t. Payment towards your line of credit is only required when it is actively drawn upon. At that time, you can choose to make payments weekly or monthly. It’s like having a safety net that’s there if you need it, also helping to improve the creditworthiness of your business along the way.
Construction Business Funding – Summary
In summary, construction business loans from banks and the SBA offer great rates but can be very difficult for contractors to access. If you need to money specifically for property or equipment, then specialist funding like mortgages or leasing may be practical alternatives. For companies looking to minimize costs, a business line of credit offers flexible finance that can be drawn upon when needed.
Whether you want to manage overall cash flow, purchase inventory at a discount, or support accounts receivable, it’s important to do your homework on all the options available. Calculate the lifetime cost of borrowing and factor in the time it’ll take to receive, then you can make a sound decision on which is best for your needs.
How We Can Help
Strategic Capital offers business loans and lines of credit that support construction companies across the USA. We don’t require capital which means that your personal and business assets aren’t part of the equation. If you’re in need of short-term financing, then we can help. Whether it’s to pay for hiring more laborers or investing in expansion we offer construction business loans without the need for collateral. Best of all, you’ll benefit from competitive repayment terms and low interest rates, so you have more money to reinvest in your business.
Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available -we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts.
Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. Learn more about our business lines of credit here.
Checking for pre-approval will not affect your credit score.