The U.S. construction industry is worth over $1.5 trillion and is growing at a steady rate. There is a lot of potential for revenue and wealth generation for any construction business, regardless of the scale of its projects—provided the financing aspect is sorted.
Prospecting the right loans for construction businesses is crucial due to the challenging nature of these operations. You need a stable stream of funds to meet project deadlines and prepare for unfavorable events that interrupt the workflow. Our guide will help you plan the financing solution that compliments your business and optimizes profits in the long run.
Nature of Loans for a Construction Business
Construction loans are considered high-risk debt products. Unlike home loans, they don’t have adequate collateral backing, so the underwriting process is relatively complicated and lengthy. Whether you’re borrowing for business or a personal project, the structure of a construction loan is the same. The following table captures the basic tenets of most construction financing products:
|Standard eligibility points||• 720+ credit score|
• Budget/feasibility reports
• Enough cash reserves
• $10,000 per month revenue (for businesses)
|Fund disbursal||• In draws for projects|
• In lump sum for equipment purchase
|Down payment||Up to 50%|
|Repayment pattern||Interest-only or fixed periodical payments|
Keep in mind that if you’re running a construction company, getting a generic business loan is also an option. Let’s explore the most sensible ways to finance construction businesses.
Business Loans for Construction—Types of Financing Available
Check out the five best ways to finance a construction business:
- Traditional business loans
- Small Business Administration (SBA) loans
- Contract financing loans
- Business credit lines
- Hard money loans
Traditional Business Loans
Most traditional lenders (like banks and commercial lending companies) have programs to support new and existing businesses. You can go for products like:
- Short-term business loans—Short-term business loans are offered for up to 24 months and can be applied toward all types of expenses
- Equipment financing loans—Equipment financing is a convenient way for construction businesses to acquire essential machinery. Equipment loans have a tenure of 1–7 years, making the repayment schedule pretty relaxed
- Working capital loans—Working capital loans are used by construction businesses facing downtime or waiting on receivables. The funds can be used for day-to-day expenses like payroll and utilities
Certain lenders (like TD Bank) offer business construction and commercial real estate loans customized to borrowers’ financial needs. Keep in mind that applying for business-purpose bank loans is time-consuming, regardless of the magnitude of your requirements. The approval and funding can take 3–6 months, so you should plan ahead to have timely access to capital.
Source: RODNAE Productions
SBA loans are the most sought-after products for small business financing because of features like:
- Generous term lengths
- Lower-than-standard interest rates
- Partial guarantee by the U.S. Small Business Administration
As far as construction financing is concerned, SBA loans are suitable for both working capital and equipment financing. You can go for 7(a) or 504 programs, summarized in the following table:
|SBA 7(a)||SBA 7(a) loans can be used for buying or starting a construction business, so you can apply the funds towards working capital and minor capital purchases, such as vacant land and fixtures|
|SBA 504||SBA 504 loans can help with the acquisition of major assets. The financing is suitable for purchase, refinance, renovation, and expansion of owner-occupied real estate, so it can cover almost all costs accrued in a construction project|
SBA-backed small business construction loans have strict entry requirements regarding aspects like annual sales, business net worth, time in business, and industry size. The underwriting process is more extensive than for bank loans, and your personal character, background, and intent also serve as relevant criteria for approval.
Contract Financing Loans
Construction loans for contractors are hard to come by because of the instability of their cash flows—that’s where contract financing can help.
Contract financing is used by construction businesses that have secured a contract but do not have the fund reserves to invest in the project. If the contract in question is viable, the lender forwards a cash advance to the business to cover the stipulated costs. You’re basically taking out an unsecured loan based on the merit of your profit prospects.
Contract financing rates start from 10%, but the lending structure and repayment elements depend on the lender. You can get this type of funding online from private or peer-to-peer lenders. The lending criteria include:
- Time in business
- Project track record
- Credit standing
- Experience with contract financing
Source: Joe Holland
Business Credit Lines
Business credit lines are technically not construction business loans—they merely allow you to borrow as much or as little within defined parameters. As a construction business owner, having a line of credit gives you the flexibility to draw exactly what’s needed and pay minimal interest.
A credit line also prevents cash crunch and is a healthy source of revolving capital. Every time you repay a balance, you’re eligible to borrow it again, which saves you the hassle of applying for loans frequently. The downside is that a credit line can be difficult to qualify for and is quite pricey because of interest and additional cost elements.
Hard Money Loans
Getting a hard money loan is one of the fastest ways to secure business-purpose construction financing. It’s an alternative loan only available privately and is tailored to meet the cash flow cycles of construction projects and real estate transactions.
A hard money loan is, basically, a collateral-focused loan. If the collateral is worth $XYZ, the lender can easily finance you up to 70% of $XYZ to meet your business, project, or real estate acquisition goals. Since the value of the loan is guaranteed by a tangible asset, hard money lenders make the screening process easy, allowing you to qualify with:
- Lenient credit score requirements
- Light paperwork
- Minimal background scrutiny
- Less-than-perfect financial history
Hard money loans for construction can be customized to suit the borrower’s situation. You can collateralize land, investment property equity, and even jewels to get the desired funds. In case you don’t have appropriate collateral, some hard money lenders can help you with other construction-friendly services, such as:
- Invoice factoring—The method requires the sale of your future receivables to the lender at a discounted price
- Mezzanine financing—If you want to start a new construction company and are struggling to get funds, mezzanine capital can help you lay the groundwork. In return, the lender has the option to convert the debt into equity in the company
Hard money lenders typically charge between 8% and 22% for construction loans, depending on the lending risk. They are also more flexible than the other options we’ve discussed, mainly because of their get-it-done approach.
How To Find a Hard Money Lender for Construction Business Loans Near Me
Finding the right hard money lender for a construction business is not easy because they don’t advertise themselves as aggressively as big banks and mortgage companies. If you want to find lenders in your area, start tapping into your real estate network because property rehabbers and wholesale agents frequently use hard money loans. You can also find relevant options by doing internet searches—most lenders provide financing in a cluster of states.
Be realistic when comparing lenders and do your due diligence before taking out the final loan. An ideal hard money lender should have ethical lending practices, which include fluid communication, transparency, and funding commitment.
Get the Best Construction Business Loans With Hard Money Loan Solutions
Hard Money Loan Solutions (HMLS) is a professional hard money financing group with expertise in financing big and small construction projects. The Florida-based group works with contractors, real estate developers, new and old businesses, and property investors to provide asset-based loans—HMLS sees the value of the assets at play in your project and lends accordingly. You can qualify for HMLS products even with:
- Inconsistent or cyclical revenue
- Home-based business
- Perceived lack of business acumen
- Poor credit scores
- Low cash reserves
- Recent losses due to economic downturns
Source: Pavel Danilyuk
HMLS construction loans can be used for equipment financing, hiring and training employees, taking on ambitious projects, and meeting other operational expenses. You can qualify as long as the group’s analysts see the profitability in your deal. Reach out to HMLS to explore their various business and real estate programs, which include:
- New construction loans
- Reconstruction or renovation loans
- Mezzanine finance solutions
- Rehab loans
- Fix-and-flip loans
- Asset acquisition loans
- Startup loans
- Refinance and cash-out refinance loans
- Bridge loans
- Rental property loans
- Commercial and investment property funding
HMLS can fund projects for $50 million and more with no red tape. Check out the particulars of the group’s products below:
|Down payment||No deposit required|
|Repayment||• Interest-only monthly dues|
• Principal due at maturity (usually after the project generates revenue)
|Loan-to-value or LTV serviced||Up to 70% of the current purchase price or appraised asset value (whichever is lower)|
|Origination fee||2 points or 2%|
|Closing time||3 days to 2 weeks|
|Eligible borrower||• Individual|
• Business entity
• Corporation or LLC
• Foreign national
HMLS Construction Company and Business Loans Help You Maximize Profits
HMLS isn’t another apathetic lender concerned with pocketing huge interest collections. If you work with the group, the team is invested in your success. HMLS lenders have decades of real estate experience and can help you with:
- One-on-one guidance to see projects through
- Objective opinion on the profitability of your plans
- Smart loan modifications to manage economic downturns
- Suitable draw schedule setup
If you’re on shaky grounds with your construction business, request a free consultancy with HMLS and have an honest discussion with the team. Qualified applicants will get tailor-made plans that align with their cash flow cycle.
HMLS is also a cost-efficient option because the group charges fair interest rates and justifiable fees. You will never find yourself burdened with junk costs like processing and draw fees or rate-lock charges that almost every bank/private lender uses to increase their margin. HMLS is currently a 5-star rated hard money lender due to features like:
- Communication transparency
- Fast funding (often within a week)
- No burdensome paperwork (you only submit business or project documents—no bank statements, asset schedules, or tax returns)
- Full funding promise—no last-minute cop-outs
- Responsive and knowledgeable team
- Interest in funding complicated deals
Source: Google Reviews
How To Get a Business Construction Loan at HMLS
Forget never-ending application forms and stressful waiting periods! At HMLS, you can get serviced within 24 hours of submitting an application online. Here’s what you need to do:
- Access the HMLS online application form
- Enter the following details:
- Business info
- Contact info
- Project/collateral info
- Attach a business/project plan (if available)
- Submit the form and wait for a lender to contact you
- Answer the lender’s questions over the phone
The HMLS team will do a careful viability check of your requested loan amount and propose a customized offer. If you accept, all you have to do is pay for the legal costs (no profit margin here) to get the agreement in order.
HMLS is dedicated to building long-term professional relationships with businesses and uplifting the real estate community regardless of the market situation. Choose the group for your projects and enjoy a seamless workflow without funding roadblocks!
Featured image source: Mikael Blomkvist