Construction Business and Equipment Financing: Best Options You Have

Construction business financing

Funding a construction business is easier said than done. While you get paid only when the project is completed (that too, in instalments mostly), the expenses are no less from the day one. You need a number of heavy equipment which are quite costly, your workers need regular payments, you need to procure the materials and supplies; the list goes on! Moreover, there’s always the unexpected costs in the form of repairing or replacing equipment and much more. So, it is no wonder that financing is crucial for the success of new as well as seasoned businesses working in this domain.

However, after the collapse of housing market in 2007-2008, the construction lending scenario in general is not so hunky-dory. On one hand, the cost of complying to the industry regulations have increased as much as 30%; while on the other hand, traditional lenders such as banks are still pretty apprehensive when it comes to construction business financing.  

So, if you are disheartened thinking a construction business loan is your only option, cheer up! We’ve compiled some lesser known, but great nonetheless financing options with which you can cover most of your expenses.

Let’s take a look!


SBA Loan

This is often the go to option for small businesses. Guaranteed by the U.S. Government through the Small Business Association, SBA loans have relatively lower interest rate and better re-payment terms. Although the qualifying criteria for SBA loans is quite stringent and it takes somewhere around 90 days to get approval, the favourable interest rates more than make up for it!

As a construction business, there are two types of SBA loans that you can apply for. The 7(a) is a great option if you need funding for your existing construction business. As this loan can be used to refinance existing debt, buy equipment, purchase land, cover construction cost and repair existing capital, the 7(a) is the best option if you are looking at expanding your business or invest in a new project.

On the other hand, the CDC/504 loan aims at creating new business avenues and more employment opportunities. You can use the funding from CDC/504 loan to construct new facilities, purchase long-term machinery, purchase and develop land and so on. So, if you are starting a new business, this is the loan to apply for.

Remember, you need to fulfil some additional criteria, such as a qualifying net worth, annual income, a proven ‘good character’ etc to get your SBA loan approved. Here, the guidance of a qualified and experienced SBA loan expert can be a great asset!


Construction Equipment Financing

Well, this will definitely not cover the entire construction business financing. But, considering the fact that purchasing or leasing equipment is one of the greatest expenditure for construction businesses, this is a great option to explore. Whether you are a new business acquiring your first equipment or an existing one looking at replacing one or more of your heavy machinery, an equipment loan is the best way to lessen your financial burden.

Most traditional lenders such as banks offer equipment loans. However, if the qualifying criteria seem a bit strict or the approval time longer than you can wait, there are a number of alternate lending options available too.

Today there are a number of non-conventional lenders who offer various types of equipment loans, including construction equipment loan. Most of these lenders have relatively more flexible eligibility criteria compared to that of traditional lenders. Moreover, the approval time is often super quick in case of online lenders. So, if you are looking for fast funding for an essential equipment, applying with an online lender is a better choice.


Conventional Commercial Loan

A conventional commercial loan offers a lump sum amount of money with the re-payment period being one year minimum to 25 years maximum. You can use this money as the working capital for your construction business.

Generally, term loans as this has to be repaid with monthly instalments that include interest and capital. However, some lenders offer balloon loan facility, where you can pay smaller instalments monthly (which generally cover the interest only) and a large final payment in the end of the loan period. As a construction business, this repayment option is possibly a better choice for you. This way, you won’t be burdened to pay a hefty monthly instalment and can repay the greater part of the loan when your project is ready and sold, aka you get return on your investment.

While both traditional banks and online lenders offer commercial loan for various businesses, going for a lender who is offering maximum flexibility in terms of repayment makes most sense here.


Line of Credit

A line of credit is more like a credit card for your business, but with few more rules and lower interest rate. This type of loan offers you a credit limit for a particular period of time, for example, you can borrow $10,000 within 5 years from the start date of the loan. During this time period, you can borrow any amount up to $10,000 as and when you need it. Once you have borrowed a particular amount, you have to pay that back only. After the repayment is done, you can borrow again within the stipulated time period.

The best thing about a line of credit loan is, as long as you are good with paying the money back, you can borrow multiple times during the time period to meet your operational needs. Moreover, the interest rate of a line of credit is generally lower than other type of commercial loans, unless you default on repayment or exceed the credit limit.

Line of credit loan is a great idea if you are starting your construction business and want to have a ready funding option for running cost. The best way to utilize a line of credit loan is to acquire the loan before you need it!


Last words

To sum it up, conventional construction lending is not your only option. So, if you are looking at refunding your construction business or planning to start one, there are a number of funding options for you to explore. Seeking out expert guidance is the best way to go about it. And the good news is, today there are a number of online providers who not only offer you quick commercial loans in a hassle free manner, but also offer you the necessary guidance about which loan to apply for and how you need to prepare for it!


No two construction businesses are the same. Give us a call at 1-888-897-9414 now to get a quick and hassle-free business loan!