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Small Business Funding

6 Popular Types of Construction Company Loans for Contractors

The construction industry is a major contributor to the country’s economy, with more than 680,000 employers and over 7 million employees creating nearly $1.3 trillion worth of new structures each year across the USA.

A number of specialties fall under the general umbrella of “construction”, including:

  • New building construction
  • General contractors
  • Plumbers
  • Electricians
  • Remodelers and renovators
  • Landscapers
  • Carpenters
  • Painters
  • Roofers, and more.

No matter what specialty you operate in, every construction business may occasionally need access to additional working capital in order to manage unexpected expenses, shore up seasonal cash flow, or fuel new growth strategies. Working capital loans for construction businesses can be used for a number of purposes:

  • To bid for a new project: Opportunities for new projects may come along unexpectedly, and you may need fast working capital up front in order to pitch new clients that will allow you to grow.
  • Fill seasonal gaps: Construction businesses are among the most susceptible to inclement weather and seasonal demand, making it difficult to maintain cash flow in the off-season.
  • Maintain cash flow during long billing cycles: Some clients may not pay till a project is completed. In the meanwhile, you still need to pay your employees and acquire supplies.
  • Purchase raw materials needed to start a project: Raw materials can be expensive, and you may need to foot the cost until you’re paid in full for completing the job.
  • Open a new business: Between business formation fees, office space, inventory and equipment, and other expenses, the average start up costs for a construction company are more than $42,000. Unless you have savings to draw from, you’ll need small business funding to open a new construction business.
  • Expand your existing business or: Boosting your marketing campaigns and courting new business may require an investment of capital.

6 Construction Company Loan Options

If you search online for “construction loans”, your search results will likely feature a number of resources talking about loans designed to help property owners—not construction business owners—finance specific projects, such as building a new home or office.

Aside from these “self-build” loans, multiple types of working capital loans for construction companies are available to help construction business owners in any field and at any stage in their business’s life cycle overcome challenges and continue to grow, including including long- and short-term funding, as well as secured and unsecured loans.

Here are 6 of the most common construction company loan options:

  1. SBA loans for construction companies
  2. Bank loans for construction companies
  3. Merchant cash advances
  4. Invoice financing and invoice factoring
  5. Lines of credit
  6. Equipment financing

Let’s take a closer look at each of these options.

1. SBA loans for construction companies

SBA loans for construction companies are not actually provided by the SBA. Instead, the funding is supplied by a commercial lender like a bank or credit union, and the loan is guaranteed by the SBA up to 85%. This reduces the risk to the lender and encourages lenders to offer more construction company loans.

SBA loans typically offer the lowest rates and the most favorable terms, but the application process is significantly more difficult, with very strict eligibility requirements and extensive application forms that require years of detailed personal and business financial information. It can take weeks or months to process your application without any guarantee of approval, and most applicants are rejected.

The SBA offers several loans options for construction companies:

  • 7(a) Guaranteed Loans: These are the most commonly sought SBA loans for construction companies. Up to $5M is available with fewer restrictions on how funds are used, longer repayment terms, and lower interest rates, and typically require collateral. The 7(a) loan program also includes Express loans, which have a turnaround time of 36 hours or less and don’t require collateral for loans under $25,000.
  • 504 Local Development Company Program: These are long-term, fixed rate loans that are typically used to purchase real estate or equipment. 504 loans are provided by CDCs through commercial lending institutions, requiring the borrowing business to use funding to create or retain jobs or uphold other public policy goals like supporting minority-owned businesses, rural development, or revitalizing a business district.

Who should apply for an SBA loan for construction companies?

  • Established businesses with very strong financial histories looking for larger loans
  • Construction businesses with long-term funding needs

2. Bank loans for construction businesses

Bank loans for construction businesses typically offer favorable terms and rates similar to the SBA depending on the size of the loan and your business’s credit history. Lending requirements are strict but may not be quite as strict as the SBA, especially if you have an existing relationship with your lender.

Similar to the SBA, it can take weeks or months for a bank to process your application, and approval is never guaranteed. Banks often prefer to grant large loans to established businesses, and typically consider the construction industry to be a high risk industry thanks to seasonal volatility and unstable cash flow. For these reasons, it can be tough for construction companies to access the funding they need from a traditional bank, especially if they’re a smaller business, a newer business, or are looking for a smaller loan amount.

Who should apply for a bank loan for construction businesses?

  • Established businesses with strong financial histories looking for larger loans
  • Construction businesses that have an existing relationship with a bank
  • Construction businesses with long-term funding needs

3. Merchant cash advances

Merchant cash advances (MCAs) are technically a non-loan form of financing called an “asset purchase”. This means that instead of providing a lump sum that is repaid over a fixed term in pre-determined instalments, your lender will purchase a portion of your future sales in exchange for an infusion of working capital up front.

MCAs are available from alternative online lenders like Greenbox Capital®. These lenders have flexible application requirements that focus less on factors like credit score and financial documentation and more on the health and potential of your business. Approval can be made in as little as one business day, making MCAs ideal for construction businesses that need working capital fast.

Instead of repaying a merchant cash advance in fixed installments like a term loan, payments are automatically deducted from your daily and weekly credit and debit card sales until the advance is repaid, plus any fees. This makes MCAs ideal for businesses that process a large number of credit card transactions such as plumbers, electricians, or other consumer-facing construction businesses.

Who should apply for a merchant cash advance?

  • Construction businesses that need fast funding
  • Construction businesses that accept credit cards and process a large number of credit card transactions
  • Businesses looking for smaller loan amounts
  • Newer businesses and businesses with lower credit scores

4. Invoice financing and invoice factoring

Invoice financing provides fast access to working capital in exchange for your business’s unpaid invoices. Available through alternative online lenders as well as traditional lenders, invoice factoring is also technically not a loan—it’s a form of accounts receivable financing in which you sell your outstanding invoices at a discounted price in exchange for the net amount in cash (typically between 70-90% of the invoices’ value).

There are two main types of invoice financing:

  • Invoice financing: You, the business owner, are responsible for collecting payment on the outstanding invoice.
  • Invoice factoring: Your lender is responsible for collecting payment. Once your client pays the invoice your lender will send you the remainder of the invoice value (minus any fees).

Because the invoice acts as collateral to secure your funds, invoice factoring typically has less strict application requirements than other forms of funding, with less focus on your credit score and financial history and more on your business’s revenue and other indicators of health and future potential. When you apply for invoice factoring with an alternative online lender, approval can be made in as little as one business day.

Who should apply for online invoice factoring?

  • Construction businesses that need fast funding
  • Construction businesses with long billing cycles or accounts receivable periods
  • Businesses looking for smaller loan amounts
  • Newer businesses and businesses with lower credit scores

5. Business lines of credit

Business lines of credit function similarly to business credit cards, but with longer terms and lower rates. Unlike a lump sum of funding like an SBA 7(a) loan or a merchant cash advance, business lines of credit provide a maximum credit amount from which funds can be drawn and repaid as needed.

Available from both traditional and alternative online lenders, business lines of credit offer the most flexibility by allowing you to draw and repay with no restrictions on how the funds are used. You’ll only ever pay interest on the amount you borrow. Payments are typically monthly and will cover both the interest and the principal.

Lines of credit can be secured or unsecured depending on the strength of your application and the credit limit you’re seeking. They can also be based on fixed or revolving terms. With a fixed line of credit, the term length is set in advance and will not reset when you repay the balance; with a revolving line of credit (also called an open-ended line of credit), your credit line will reset when you pay the balance in full.

Their flexibility makes lines of credit ideal for managing a number of expenses unique to construction businesses, including:

  • Responding to unexpected emergencies
  • Restocking raw materials
  • Purchasing new equipment or technology
  • Bidding for new jobs
  • Shoring up seasonal cash flow
  • Other major expenses that don’t require a loan but which may drain your cash flow

Who should apply for a business line of credit?

  • Construction businesses that need flexible funding
  • Seasonal businesses that may need access to working capital to shore up cash flow during the off-season
  • Businesses that want a cushion of working capital to manage unexpected expenses or finance growth strategies

6. Equipment financing

Equipment financing is a special form of construction company funding designed to help fund the purchase of expensive construction equipment, such as bulldozers, lifters, excavators, loaders, forklifts, and any other heavy machinery or costly equipment. The lender will typically supply 80-100% of the cost of the equipment, with the equipment serving as collateral to help secure the loan.

Funding from an equipment financing loan can only be used to purchase the specific equipment it’s being sought for, but because equipment financing is secured, it typically has lower rates than other forms of construction company funding. Equipment financing is repaid in regular instalments, typically monthly, with the term length dependent on how long the lender anticipates the equipment will last.

Who should apply for equipment financing?

  • Construction businesses that need financial assistance purchasing specific heavy equipment or machinery

Pros and Cons of Construction Company Loans

Loan TypeProsConsIdeal for
SBA Loans

Lowest rates and typically better terms

Large loan amounts available up to $5 million

Most applicants are rejected, especially those with lower credit

Extensive application and detailed documentation required

Can take weeks or months to process with no guarantee of approval

Some loans restrict how you use your funds

Established businesses with strong financial histories seeking larger loans
Bank Loans

Low rates and good terms depending on size of loan and credit history

Slightly less strict application requirements than SBA loans

Many applicants are rejected, especially for smaller loans amounts of lower credit

Extensive application requirements with detailed documentation

Can take weeks to process with no guarantee of approval

Some loans restrict how you can spend funds

Established businesses with strong financial histories seeking larger loans
Merchant Cash Advances

Faster approvals with funds deposited in as little as 24 hours

Easier lending requirements with approval based on business health and potential

No restrictions on how funds are used

More likely to fund younger businesses

May have higher rates

Daily or weekly repayment terms

Must accept credit cards to qualify

Businesses that need faster funding

Younger businesses

Businesses with lower credit scores

Businesses that process a large number of credit card transactions

Invoice Factoring

Faster approvals with funds deposited in as little as 24 hours

Easier lending requirements with approval based on business health and potential

No restrictions on how funds are used

More likely to fund younger businesses

May have higher rates

Typically shorter terms than other forms of funding, often corresponding to your accounts receivable period

Businesses with longer accounts receivable periods

Businesses who need to fill in gaps between sending invoices and receiving payment

Invoices valued at $15,000+ with extended credit terms, and which are not more than 90 days past due

Lines of Credit

Only pay interest on the amount you borrow

Draw and repay funds as needed

No restrictions on how funds are used

Lower rates and higher limits than business credit cards

Tougher application requirements

Lower amounts than other forms of funding

Business owners with strong credit history who want a cushion to fill in gaps in cash flow or cover emergency costs

Business owners who need flexible, ongoing access to working capital

Equipment Financing

May be easier to qualify for because equipment serves as collateral

You own the equipment instead of leasing it

Funding can only be used to purchase specific equipment

Higher rates than other types of funding

Very specific equipment or equipment that goes out-of-date quickly may have higher interest rates

Businesses with significant or immediate equipment needs

What Construction Company Funding is Right For You?

The right construction company funding depends on a number of factors, such as how much funding you need, why you are seeking funding, and your business’s age and financial history.

Bank and SBA loans for construction companies typically offer the best rates and terms, but the application process for these loans is extensive with very strict requirements that exclude most business owners. As an alternative lender, Greenbox Capital can approve more working capital loans for construction companies in as little as 24 hours. We provide several types of small business funding to help grow your construction business, such as merchant cash advances, invoice factoring, and business lines of credit, with funding from as low as $3,000 up to $500,00 available.

We fund businesses in all construction specialties. Our expert Funding Advisors will work closely with you to determine which funding option will help you achieve your goals without compromising your business’s cash flow.

Learn more about alternative funding

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