Construction Loans: 7 Options for Firms

Running a construction firm can be expensive. Building, repairing, renovating, and maintaining infrastructures may easily run up a tab. Whether your construction firm focuses on residential, commercial, or industrial projects (or a combination of the three), you might find yourself needing additional funding to support your operation. There are typically a number of loans suitable for construction firms. Let’s dive into some of your options.

Pre-qualify now

7 loans for construction firms

There are several small business loans to suit construction companies of various types. Here are some of your choices.

1. SBA 7(a) loans

SBA loans are generally one of the top picks for small business owners and lenders alike because they’re “guaranteed” by the federal government for up to 85% of the loan. In other words, if the borrower can’t repay the loan, the lender may still be protected.

SBA 7(a) loans offer lower rates and long repayment terms. They can be used for different purposes, including working capital, debt refinance, the purchase of real estate, and the purchase of equipment, machinery, supplies, and materials. An SBA loan may help a construction firm survive and thrive, even in trying economic times.

While lenders differ in their requirements and terms, this is what SBA 7(a) loans typically look like:

  • Loan amount: Up to $5 million
  • Repayment period: 10 years
  • Repayment schedule: Monthly payments - principal plus interest
  • Turnaround time for approval/funding: Once your application is approved by the bank, funds may be deposited into your bank account in as fast as seven days
  • No prepayment penalty for early loan payoff

2. SBA microloans

If you want to borrow through the SBA, but on a smaller scale, microloans might be a good fit for your construction company. They work the same way as 7(a) loans but are typically better suited for smaller or newer businesses looking to make less expensive purchases. Microloans still offer the same benefits as an SBA loan, including favorable interest rates and a long repayment period.

  • Loan amount: Up to $50,000
  • Repayment period: The maximum repayment term allowed is six years.
  • Repayment schedule: Monthly payments of principal and interest
  • Turnaround time for approval/funding: 1-3 months

3. Bank loans

Bank term loans are a more traditional way of borrowing money and typically a way to get a considerable amount of money in one lump sum. One of the biggest differences between a term loan and an SBA loan is that term loans aren’t guaranteed, so the lender may be taking on more risk. However, these loans generally still offer favorable terms. Term loans’ processing time for applications may be shorter than that of SBA loans. Interest rates are low, the uses are flexible, and they may give construction firms a serious boost when it comes to long-term growth.

If you work with a bank through the SmartBiz network, here’s an idea of what you can expect:

  • Loan amount: $30,000 to $300,000
  • Repayment period: Two to five years
  • Repayment schedule: Monthly payments toward the principal and interest
  • Turnaround time for approval/funding: Varies based on the lender

4. Equipment loans

Buying, renting, maintaining, and repairing your equipment might cost thousands of dollars on a good day. However, it doesn’t take much for those costs to skyrocket into the five- and six-figure range. While other construction loans might allow use for equipment (like SBA 7(a) loans), you can apply specifically for an equipment loan for that exact purpose.

It’s typically easy to qualify for equipment loans because the equipment you purchase becomes the collateral. If you default, the lender repossesses the equipment you purchased.

  • Loan amount: 80-100% of expected equipment costs
  • Repayment period: Three to 10 years
  • Repayment schedule: Daily, weekly, or a combination thereof
  • Turnaround time for approval/funding: Typically a week or less
//resources.smartbizloans.com/wp-content/uploads/Term-Right-Loan-Right-Time.png

5. Merchant cash advances (MCAs)

MCAs aren’t a loan. Rather, the lender gets a portion of future sales in exchange for the upfront capital that they loan. Instead of repaying the lender in fixed installments (as they would with a loan), the borrower has payments automatically deducted from their credit card sales until the balance, plus any fees, is repaid. However, there’s one major drawback: The factor rates (which replace traditional interest rates) are typically extraordinarily high—the APRs may get as high as 300%.

  • Loan amount: Up to $500,000
  • Repayment period: Three months to three years
  • Repayment schedule: Daily
  • Turnaround time for approval/funding: Typically less than a week

6. Credit cards

Business credit cards act as revolving loans. As you pay back your debt, the credit card “resets.” Another benefit is cashback rewards that you get for spending, which you can put toward other business expenses. The drawback is that the spending limits are typically lower, so construction companies will likely stick to these for smaller, everyday purchases.

  • Loan amount: Up to $250,000
  • Repayment period: Ongoing as long as you use the card
  • Repayment schedule: Monthly payments toward the principal and interest
  • Turnaround time for approval/funding: 7-10 business days

7. Lines of credit

Similar to credit cards, business lines of credit are revolving. You can borrow the money as needed, and this is typically the only money you pay interest and fees on (not the total amount available to you). You can generally secure these loans fairly quickly, and they’re often ideal for smaller purchases.

  • Loan amount: Up to $1 million
  • Repayment period: Six months-four years
  • Repayment schedule: Flexible, but the sooner you pay, the lower your fees/interest
  • Turnaround time for approval/funding: Varies by lender

What types of construction firms can use small business financing?

“Construction” is an umbrella term. It can refer to residential properties, like houses and apartments. It could also refer to commercial properties, like office buildings and shopping centers. And finally, it might mean industrial properties, like factories, warehouses, distribution centers, and storage facilities.

Furthermore, construction isn’t just the building of new establishments. It also involves maintaining, repairing, and renovating them.  Depending on where you operate your business, the construction industry can be fiercely competitive. It’s crucial that construction firm owners stay competitive by employing top talent, using the most up-to-date technology, and keeping cash flow steady. Many types of construction firms may benefit from the right financing.

Finding loans for construction firms with SmartBiz®

As you can see, there are various loan options, each with varying terms and eligibility requirements. So how can you narrow down the right loan for you and increase your odds of getting approved? SmartBiz helps streamline the application process and connects you with the best lender for your needs, making the whole journey less time-consuming and more successful.

Apply now* to see if you pre-qualify!

*We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.