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.
SMB Compass offers construction business loans to contractors in the United States.
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.
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.
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.
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.
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