Construction is a tough industry. Regulations, inspections, and the general unpredictability of the market can make it difficult for contractors to keep their projects on schedule. For these reasons, many construction companies turn to business loans.
If you want to grow your company, it’s important that you have access to financial resources. You may work in the construction field as a general contractor, HVAC technician, electrician or other trade professional. In either case, construction contractors are eligible for several kinds of lending products with competitive interest rates and repayment terms.
Keep reading to learn more about construction business loans for contractors.
What Are Construction Loans for Contractors?
Sometimes, it can prove impossible to manage cash flow, no matter how hard you try. Small business construction loans enable contractors to cover big expenses. For example, you may need to buy supplies or pay subcontractors for a project.
Loans for construction are also great for contractors who want to restructure or expand their businesses. Alternatively, you may want to borrow money for materials.
In other instances, you might want to consider an equipment lease. By leasing equipment, you can take on bigger jobs and earn more revenue for your company.
In yet another scenario, business loans for contractors can enable contractors to branch out on their own. In this instance, a construction loan is ideal for starting your own construction business. With a construction loan, you can buy equipment or a vehicle and set up your own shop.
Some construction loans might have low monthly payments and a short repayment term, so you can start your project quickly and easily. An experienced mortgage broker can help you learn more about what type of loan would work best for your needs.
Why Do I Need a Business Loan for My Construction Company?
In the construction industry, strong cash flow is critical. It can buy materials and pay salaries.
Poor cash flow is a significant problem in the construction field. It happens often, and because of it, contractors and sub-contractors go out of business. Companies might make a profit, but if there’s not enough cash, projects will start to fail.
Contractors can face cash flow problems for several unanticipated reasons. For instance, a contractor might take on too much work and use up all their cash reserves. In other cases, a contractor might fund projects before getting paid.
In these instances, contractors often float a project out of their own pockets when the project owners haven’t paid. Otherwise, the project will have to come to a halt. In turn, a delay in one project can put other projects behind schedule.
Finally, some contractors might not track change orders properly. When this happens, they lose money and time. In this unfortunate instance, a cash infusion can help keep a project moving forward.
How Much Funding Can I Borrow?
If a contractor has a good credit history, they may qualify for one of several types of business funding. These options will depend on whether the borrower is seeking funding to purchase materials or hire employees, as well as how much money they need upfront.
The construction loan amount is up to the individual contractor. It often depends on how much they need to borrow and what type of construction project they are undertaking. The current interest rates will also determine the size of a construction loan available for contractors.
Depending on the loan, you’ll only pay interest for what you use. Each state has different laws regarding how much interest lenders can charge. Also, each underwriter might provide different rates depending on their lending strategies.
It’s vital to shop around for the right loan product before applying. More importantly, you’ll want to look for a mortgage broker you can trust in the long run—more on that in a moment.
Things You’ll Want to Consider Before Applying
Before you apply for a construction business loan, you’ll want to make sure that you do your homework. It’s important to know that that the lender will provide a loan with terms and payment options that work for you, not against you.
Firstly, you’ll want to check your credit. The better your credit score, the larger your chances of securing a construction loan and favorable terms.
The next step is honestly assessing whether you can repay the loan, including the interest rate. You need to think about what works best for you. You also want to consider whether your company’s revenue is strong enough to convince a lender that you can repay your business loan.
Finally, you want to think about how long you’ve been in business. The longer you’ve been in business, the better. The more contracts or jobs you’ve completed, the greater chance a lender will agree to provide you with a construction business loan.
Types of Construction Business Loans
There are many types of lending products that you might consider for your construction business. The following entries highlight a few of the most common business loan products.
Equipment Leases
Without the right equipment, it’s difficult to grow your business to its full potential. At the same time, it can prove challenging for smaller contractors to purchase equipment needed to earn more income. In these instances, equipment financing may help you upgrade your business.
Equipment leases offer a low monthly payment option that doesn’t require you to pay the balance in full. Resultantly, an equipment lease is a great way to get the full benefit of equipment without incurring large upfront costs.
Asset-Based Loans
With an asset-based loan, you’d secure a loan using your company assets for collateral. This kind of loan allows you to access working capital immediately. You can even structure this kind of loan as a revolving line of credit.
An asset-based loan is a short-term loan. It enables you to borrow money to cover the costs of your ongoing operations.
For instance, you might need to borrow funds for payroll, materials or other expenses. This kind of loan is an excellent alternative if you’re not eligible for a traditional business loan.
Factoring
Factoring is another borrowing option. You may also hear this kind of loan called Accounts Receivable financing. In many cases, there’s no credit check with factoring.
If you’ve already established a business with a strong income but are experiencing a gap in cash flow, you might benefit from this option. A factoring company will loan you the money that you need. In this way, you can receive cash based on the value of your outstanding invoices.
How to Get a Construction Business Loan
Construction company owners are often forced to rely on traditional lending institutions for financing. However, traditional lenders can prove slow, inflexible and expensive.
They also have a very low appetite for risk. As a result, borrowers must submit mountains of paperwork, undergo rigorous credit checks, and endure long wait periods. Even worse is that these loans typically come with high-interest rates that can cripple your cash flow or even put you out of business if you’re not careful.
It can prove challenging navigating the complex world of loans. However, a commercial loan broker can help you get the construction loan you need. They can walk you through your options and help ensure that you’re receiving the best possible rate from a reputable lender.
There are many different loan products. As a result, it’s important to understand what they entail before applying for a loan.
Construction loans have become popular in relatively recent years. They allow contractors with active construction projects to access more funds to stay on schedule.
A construction loan can help you to avoid work stoppages while waiting for funding approval. With the right construction loan, you can make sure that you always have funding for your business when you need it the most.
With this in mind, you’ll have much more success in finding the right kind of loan product by working with a trusted commercial mortgage broker.
We’ll Help You Access the Cash That You Need to Grow
Now you know more about construction business loans for contractors. What you need now is a lending partner that’s on your side.
That’s where we come in…
Hasanov Capital offers flexible terms so you can get the money you need when you need it. More importantly, we’ll help you to find the best construction business loans for your business.
Don’t wait! Contact Hasanov Capital now to find the right loan for your construction project.
