Financing for the Construction Industry

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From $25,000 to $5,000,000, with terms up to 10 years

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The construction industry is notorious for being capital intensive. Running your own construction firm takes hard work, expertise, and a lot of resources. You’ll need capital available to start new projects and fund the working capital for existing ones. Contractor financing is important to keep up with the need to purchase materials, buy new equipment, and to hire employees.

Cash flow is a common issue among small business owners, but it’s predominantly tough for construction businesses. Companies in this industry often wait for months before getting paid, making it more difficult for them to align their income and expenses. Quick access to construction financing can effectively bridge cash flow gaps.

SMB Compass goes the extra mile to provide you with personalized construction business loans. By using the right financing solution, you can continue to grow your business without thinking about having the capital available to you.

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Financial Solutions

The Best Financial Solutions for Construction Companies

Construction businesses need working capital to bridge the gap between cash payables and cash receivables. SMB Compass offers construction business loans to contractors in the United States. Our reliable lending advisors will help you find the best construction business loan specific to your business needs.

Bridge Loans

A bridge loan is perfect for business owners who need immediate financing. As the name suggests, bridge loans help bridge cash flow gaps. It’s best for funding short-term needs, such as replacing broken equipment, purchase materials, and hire more workers.

Here are some of the ways you can use bridge loans:

  • Bulk material discounts
  • Mobilization funding
  • Leasehold improvements
  • Hiring new employees
  • Purchasing equipment
  • Transitional financing

Equipment Financing

Construction companies rely on heavy equipment, such as loaders, excavators, bulldozers, etc., to conduct daily operations. However, you’ll need a substantial amount of money to purchase large equipment, and this could possibly put a dent on your cash flow.

You can use equipment financing to purchase or rent basic office equipment (phones, tablets, printers, furniture, etc.) to more expensive construction equipment and/or vehicles.

Here are some of the ways you can use equipment financing:

  • Purchase equipment
  • Refinance existing equipment
  • Update outdated equipment
  • Lease new equipment
  • Replace construction software
  • Upgrade customer management systems
  • Consolidate existing debt
  • Purchase new equipment
  • Business acquisition
  • Partner buyout
  • Debt refinance
  • Upgrade equipment
  • Purchase commercial real estate
  • Refinance existing real estate mortgage
  • Leasehold improvement
  • Business expansion

SBA Loans

SBA loans are widely used by construction firms, thanks to the lower interest rates, longer repayment terms, and higher loan amounts. The Small Business Administration created SBA loans to help small businesses, including the construction sector, secure bank-rate financing.

However, you need to prove that you’re a strong borrower to qualify for SBA loans. This can be challenging and time-consuming for small business owners. Our financial advisors will gladly help you throughout the entire process.

Here’s a list on how you can use an SBA loan your construction business:

  • Loader Financing
  • Excavator Financing
  • Dozer Financing
  • Truck Financing
  • Crane Financing
  • Equipment Management Software Financing
  • Dump Truck Financing
  • Air Compressor Financing
  • Welding Equipment Financing
  • Backhoe Financing
  • Wood Chipper Financing
  • Forklift Financing
  • Concrete Paver Financing

Business Lines of Credit

Construction companies use a business line of credit for daily business operations. With this type of loan, you don’t have to pay for the entire line of credit; instead, only need to repay the money you’ve withdrawn, plus the interest.
Here are some of the ways you can use a business line of credit:

  • Purchase supplies
  • Advertising and marketing
  • Day to day operating cashflow
  • Purchase equipment
  • Leasehold improvements
  • Mobilization funding

Asset-Based Loans

Does your business own high-value assets? You can free up working capital and use those assets to your advantage. An asset-based loan allows you to secure financing by putting up company assets (equipment, accounts receivable, inventory, etc.) as collateral.

Here’s why your construction business should use asset-based loans:

  • Increase operating cashflow
  • Refinance construction equipment
  • Accelerate invoice payments
  • Reduce monthly debt payments
  • Purchase new equipment
  • Hire new employees

Term Loans

A term loan is a classic business loan where business owners receive a lump sum that needs to be repaid within a specified period. These loans typically charge monthly payments and have repayment terms that range from one to five years. Many construction business owners apply for term loans because of their spending flexibility.

You’ll be able to use the funds from a term loan for the following expenses:

  • Purchase new equipment
  • Leasehold improvements
  • Refinance existing equipment loans
  • Consolidate debt
  • Hire new employees
  • Working capital injection

Construction Invoice Factoring

Many contractors use construction factoring to sell a portion of their invoices in exchange for upfront capital. Instead of waiting for months before getting paid, invoice factoring allows you to receive invoice payments sooner rather than later. As long as you have unpaid invoices to sell, you’ll be able to access working capital anytime.

You’ll be able to use the funds from a construction invoice factoring for the following expenses:

  • Marketing and advertising
  • New construction projects
  • Business expansion
  • Hiring new employees
  • Purchasing materials
  • Leasehold improvements

Mobilization Funding

Contractors that bid on large commercial jobs often need of financing to pay for upfront expenses associated with the new project. Mobilization funding provides capital for expenses incurred before you can invoice your customer.

Once you invoice your customer and get paid you can pay back the mobilization financing. Frequently mobilization funding is paired with factoring to help accelerate cashflow throughout the life of the project.

Here are some of the ways you can use the funds from a mobilization funding:

  • Purchase materials
  • Labor expenses
  • Buy new equipment
  • Hire new employees
  • Travel expenses
  • Design fees
construction loan

How to Use Construction Business Loans

From financing ongoing and future projects to covering unforeseen expenses, there are different ways you can use construction business loans.

Here are some of the most popular ways to use construction financing:

Hire and/or Train Employees

Construction projects are a lot of work and you can’t possibly do everything on your own. Hiring and training new members will help your construction company grow and succeed. You can take on more projects; provide better service, and more. With a construction business loan, you can cover the cost of hiring and training your employees.

Pay for Unforeseen Expenses

Lawsuits, unpaid invoices, natural disasters, accidents – these are just some of the unforeseen expenses that can catch you off guard. Don’t wait until disaster strikes; be prepared and use construction business loans to pay for these unexpected expenses.

Outsource Other Services

Marketing, web development, and accounting are some of the tasks you may want to outsource. Contractors have their hands full all the time, so outsourcing these jobs can help you save time and effort. However, these services come at a price. Construction loans provide you with the funds needed to outsource tasks and hire reputable companies.

Purchase Materials and Equipment

Construction projects rely heavily on equipment and machinery. If you want to buy new/used equipment, construction equipment financing gives you the funds to do just that. It also helps to know the difference between equipment loans and leasing before applying. If you want to know more, our financial experts will be more than happy to explain it to you.

Growth and Expansion

While it’s great to have an established online presence, it will also be beneficial for construction companies to have a physical location. If you want to renovate and expand your current space or you want to branch out, taking out a construction business loan is a wise move.

Fund Construction Projects

Scaling business operations is the goal of every business owner. However, taking on bigger projects means bigger expenses, sometimes even beyond your budget. Rather than turning down growth opportunities, you can use a construction business loan to fund new and existing projects.
Need-Construction-Financing

How to Know If You Need Construction Financing

Need Construction Financing
While construction business loans can help your business, not everyone needs them. If your construction company is young and you need capital to get you started, applying for a construction business loan may get your business up and running.

However, startup companies aren’t the only ones with cash flow issues. Established companies come across financial problems every now and then. But this doesn’t mean that you should take out a loan. After all, a loan is a loan and you need to pay it back. You need to ensure that your business is profitable enough to repay the loan.

SMB Compass cares about your business and we want you to make the most out of your finances. Our financial experts can help assess your construction company and determine whether you’re in a good place to apply for a loan. If so, we will help your business reach its full potential by pairing you with the right loan product.

What You Need to Apply for a Construction Business Loan

Keep in mind that the requirements vary from lender to lender, as well as the type of loan you’re looking to get. Here are the things they will likely ask of you:

Strong Personal Credit

Some loans don’t require you to have strong credit. But if you want to qualify for favorable terms, you need to demonstrate a good personal credit rating. When you apply for a loan, expect lenders to review your credit history.

Down Payment and Collateral

To qualify for a construction loan, some lenders will ask you to make a down payment of at least 20% (10% for SBA 7(a) loans) of the total cost of the project. If you own valuable assets, lenders may also ask that you use that to secure the loan.

The total percentage of the down payment largely depends on the cost of your project and the intended use of the loan funds. Lenders ask a personal guarantee to ensure that you’re invested in your company and that you won’t default on the loan when things go south. Make sure to talk to your lender regarding down payments and collateral.

Good Reputation

Vendors, subcontractor reviews, previous work experience, online reviews – lenders want to know about it. Lending companies will closely inspect the reputation of your company and the people you’re working with.

If you’re working with a builder, make sure to ask for evidence of a good reputation, cost estimates, and comprehensive project plans. To ensure that you’re working with a reputable builder, you can check the National Association of Home Builders in your area.

It will be easier for you to qualify for a construction loan if lenders see that you’re working with trusted people with proven track records.

Financial Paperwork

Lenders want to know that your business is healthy enough to repay the loan. Generally, they will check your current and past debt, payment history, other loans or liens that you may have on your assets. You also need to provide financial statements, income tax returns, and proof of assets.

Detailed Business and Construction Plan

Lenders won’t hand easily hand you the money just because you asked for it. You need to show them that you have a plan in mind. You need to provide a comprehensive business plan, along with plans for specific projects, construction contracts, detailed building plans, and cost estimates.

FAQ About Construction Business Loans

What is a construction business loan?

A construction business loan is financing that provides construction businesses or contractors the necessary capital to take on new projects as well as finish existing jobs. It’s common in the construction industry that there will be long payment terms and financing helps bridge this gap.

How do you qualify for a construction business loan?

The qualifications for a construction business loan are all dependent on the type of financing a business is looking to secure. For a bridge loan or a line of credit, revenue and time in business are important. If a business is looking for invoice financing or factoring the debtor has to be a reliable client with good trade credit history. Longer term financing such as term loans and SBA Loans more have sterner qualifications including a business owners personal credit and guidelines regarding the profitability of the business.

How long does the application process take for a construction business loan?

The timeframe of the application process for a construction business loan varies depending on if a business is looking for short or long term financing. The application process for a bridge loan or line of credit is minimal and will require limited documentation. The application process for long term financing such as equipment financing, asset based loans, and SBA Loans are longer and tend to require significant documentation.

How would you use a construction business loan?

Construction business loans are used for a wide range of different reasons including equipment, labor, and materials. Long payment terms need to restrain cash flow and financing provides businesses with the working capital necessary to operate effectively. Construction financing can also help consolidate existing debt as well as take on larger projects that cannot be possible with the current cash flow.

Is collateral required for a construction business loan?

Collateral may be required for a construction business loan if the financing includes equipment or is stretch out over a long period of time. Equipment financing will require the piece of equipment to be used as collateral. SBA Loans require that any and all available assets be used as collateral while shorter term financing options such as bridge loans and lines of credit may not require collateral.

What are the different construction business loan options?

Since the construction industry is so vast and unique there is a wide range of different construction business loan options to consider. Some of the most common financing options in that construction businesses and contractors use include equipment financing, bridge loans, lines of credit, and factoring. Asset based loans and SBA loans are also common in the industry and very help for business owners.

Learn About Your Financing Options

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