Lenders consider construction a high-risk industry, which can make it tricky for you to get the financing you need for the materials and labor to complete your work. You might have trouble getting a prime-rate term loan from a bank. But you’ll find funding options available to construction companies that can help your business grow.
The best type of business loan depends on what your business needs to finance and what it can qualify for. These five types of financing are typically available to the construction industry and types fill common needs.
We also added our choice for the best provider of that type of loan, based on rates, terms and loan amounts available. And we also made sure that construction businesses were eligible.
The Small Business Administration (SBA) offers government-backed financing to businesses that have struggled to qualify for a bank loan. Since construction is considered a risky industry, SBA loans might offer the lowest rates you're able to qualify for.
The SBA 7(a) program offers general-use term loans that can be particularly useful for buying equipment, building a new office, consolidating high-interest debt or buying out a competitor. It also offers government-backed lines of credit with special programs for filling contracts, building or renovating real estate and seasonal businesses.
But save SBA loans for large, future projects. The application is time-consuming and it can take months to receive your funds. You also generally need to good credit and at least three years in business to qualify.
SmartBiz isn't a lender, but it can connect you with banks that offer SBA loans to contractors. Its platform makes it easy to find a lender. And if you sign up for its packaging service, you can cut the application time down from months to weeks. But these services aren't free — you'll pay a broker and packaging fee.
Extensive network of SBA lenders
Cuts down turnaround time
Also offers non-SBA bank loans
No loans under $30,000
Charges referral and packaging fees
$30,000 – $5,000,000
4.75% to 7%
Min. Credit Score
10 to 25 years
640+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years
Equipment financing includes loans and leases to buy the equipment your business needs to complete a construction project. You can typically borrow between 80% and 100% of the equipment's value — though some companies offer as much as 400%. Typically, terms are based on how long the lender thinks the equipment will be useful.
Because collateral is built into the loan, this is one of the easiest type of financing to qualify for, even as a new business or with bad credit. The collateral also makes it easier to qualify for a low rate compared to other types of financing.
National Funding specializes in equipment financing and working capital loans for industries that might struggle to qualify elsewhere — including construction. You can borrow up to 400% of your equipment's value and repay it over a term of five years. But it isn't transparent about the cost of its equipment loans.
No down payment
Up to 400% LTV
Only requires six months in business
Only finances up to $150,000
Out of date website
$5,000 – $500,000
4% to 8%
Min. Credit Score
Up to 12 months
Be in business at least one year and make at least $150,000 in annual sales. Other loan types have additional requirements.
A line of credit offers your company access to cash as needed to cover a long-term project. These are best for working capital expenses when you're filling a contract, after you've bought your equipment and the basic supplies you know you'll need.
SBA CAPlines are a great option for large projects. But if you can't qualify for an SBA loan, consider an online lender. They're more likely to work with construction businesses than a bank and often accept fair or bad credit. They're also typically faster and easier to manage than a bank credit line.
This online lender offers lines of credit that contractors can use to fund projects with unpredictable expenses and other working capital costs. Rates start relatively low — especially for a lender that works with fair credit and businesses that have been around for less than a year. But it comes with weekly repayments, which might be difficult to manage if you have gaps in your business's cash flow.
Access your credit line within two days
No draw fees
Fair credit startups can qualify
Charges $15 fee for same-day funding
Doesn't disclose maximum rates
$5,000 – $250,000
Starting from 4.8%
Min. Credit Score
6 to 12 months
6+ months in business, $10,000+ in monthly revenue, 600+ credit score
Invoice financing gives you an advance on your client's unpaid invoices when you need funds to complete the job. Typically you can receive up to 85% to 100% of your invoice's value upfront. And when your clients pay their invoices, you pay off your advance. Usually invoice financing charge a monthly rate of around 3% to 5% of the advance.
One benefit of invoice financing is that eligibility is often based on your client's credit — not yours. You also don't typically need to be in business for a specific amount of time.
Fundbox can finance up to 100% of your unpaid invoice's values. Rather than looking at your personal credit, it considers the overall financial health of your construction company. It's simple to apply — it looks at your accounting software and bank account rather than requiring lots of documents. But it charges high late fees and weekly repayments.
Takes minutes to apply
Up to 10% financing
Doesn't prioritize credit score
Low maximum limit of $100,000
$1,000 – $150,000
Min. Credit Score
12 or 24 weeks
6 + months in business, $100,000+ in annual revenue, 600+ credit score
Short-term business loans give you a lump sum that you pay plus installments over six to 18 months. They’re often available to high-risk industries like construction. They’re also usually friendly to newly established businesses and bad credit borrowers. And you can get funded within a few days.
But unlike other term loans, short-term loans often come with daily or weekly payments, which can be inflexible. They also tend to be one of the more expensive options. In some cases, lenders charge rates and fees equivalent to an APR over 300%.
Fora Financial offers construction-friendly short-term loans with relatively low fees compared to other similar providers. You only need to be in business for six months and make over $140,000 in annual revenue to qualify. It also accepts owners with bad credit. But like many short-term lenders, it’s not transparent about the cost of its loans on its website. And you’ll have to make payments every week or even every day.
Bad credit OK
Only requires six months in business
Discount if you pay off loan early
Doesn’t disclose rates and fees online
Daily or weekly payments
Can take three days to get approved
$5,000 – $500,000
Min. Credit Score
4 to 15 months
6+ months in business, $12,000+ monthly revenue, no open bankruptcies
How to decide which loan offer is best for my business
Finding the right loan offer starts with narrowing down the right type of financing.
If you’re in need of heavy machinery, an equipment loan might be the right option.
Struggling with cash flow? A line of credit or factoring could be a better bet.
Need funding specifically to finish a project? An SBA Contract CAPLine is an option.
Also consider your priorities. If you need money now, a short-term loan or line of credit could your fastest choices. A Contract CAPLine can help you save on interest and fees if you have time to dedicate to the long application process.
Costs, loan amounts and limitations on how you can use your funds are all factors you might also want to consider. Finding a loan you’re eligible for can be tough for contractors because lenders consider construction to be a risky business. Before seriously considering a loan, make sure your business is eligible for it.
Compare more loan options for construction businesses
Check out options by selecting information about the loan you're looking for, time in business and credit score.
What common business expenses can I cover with financing?
From training crew to investing in marketing, a business loan can help you pay for a variety of expenses:
Equipment. An equipment or term loan can help your business buy the machines you need or rent project-specific tools.
Payroll. Each project can come with a new foreman, engineer, scheduler and super — all with their own carefully negotiated salaries. A term loan or line of credit can help you cover these costs.
Temporary office space. A loan or lease can help pay for a trailer or other accommodations for supervisors, architects and more.
Temporary utilities. Portable toilets, drinking fountains, lighting and other utilities needed at construction sites can vary from project to project, and your business might not have the money to cover them up front.
Training. Working with the same crew on different projects can result in a smoothly run project. A loan can help you invest in cross-training for employees to ensure they have the skills needed for each job.
Marketing and advertising. Investing in a smart ad campaign can bring in new clients and more than pay for itself. A loan could help you afford the upfront costs.
What will I need to apply?
The documents and information you need to apply can vary widely depending on the loan, the lender and your business’s finances.
SBA loans are notorious for their laundry list of required information, including documentation of any run-ins with the law. Others are a lot less involved, asking for:
Accounts receivable aging report. Factoring companies and select business lenders will ask to see your business’s unpaid invoices from companies or government agencies and when they’re due.
Business bank statements. Lenders want an idea of your business’s general cash flow — often three months’ worth.
Tax returns. You’ll likely need to produce your recent business and personal tax returns.
Copies of current contracts. It’s not always required, but current contracts can give lenders an idea of how much your business expects to bring in and when.
What challenges might I face as a contractor applying for a loan?
Construction isn’t like any other businesses. Contract is in its name, making it hard to predict future revenue — or whether your business will be around before your loan term is up. That’s why some lenders aren’t as willing to work with contractors as they are with businesses in more stable industries.
Not all lenders list the industries they’re willing to work with, so contact customer service first to make sure your company is eligible. You might also consider backing your loan with collateral or a lien on your business or personal assets to offset some of the risk.
Businesses that aren’t yet a year old will face a tougher process: Lenders prefer to work with companies that have experience. Bad personal credit can also hurt your application. In these cases, backing your loan with collateral could help, though you might only qualify for more expensive types of financing, like short-term loans or factoring.
6 tips for running a sustainable contracting company
Is your construction company just getting off the ground or looking for ways to grow? Here are a few pointers to help your business stay around for the long haul.
Find a mentor. Mentors aren’t just for rookies — many of us can learn from others with more experience. And while yours may not always be right, they could point you in new directions or provide insights you might not have thought of.
Make a budget. Unpredictable overhead can sink a contracting company. A budget might not prevent it, but a strong one can help you decide when and what to change about your business to make it more efficient.
Join an industry association. Organizations like the Associated General Contractors of America can connect you with other companies and help you learn about the resources you need to run a tighter business — like tips on what products to use and prices to charge.
Invest in marketing. When you depend on clients, marketing is key. It can help you find new customers and projects that make the most of your team’s skills.
Know when to outsource. Your business will likely run into situations where you’ve bitten off more than you can chew. Hiring outside help — like an accountant to handle your finances while you take care of something more urgent — can help you deliver your best on a contract.
Getting a loan is often harder for contractors than businesses in other industries. Equipment financing and SBA loans can be your least expensive options, though they might not be right for your specific needs.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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