Construction loans are short-term financing arrangements between a lender and a property owner. Homeowners can choose from several types of construction loans:
- Construction-only – This is a short-term, adjustable-rate loan.
- Construction-to-permanent – This loan finances construction and then converts to a mortgage loan.
- Owner-builder – These loans are only available to licensed contractor-homeowners or those who have proven, recent experience as a homebuilder.
- Renovation – This is like a mortgage and can be based on the home’s value after renovation.
Construction companies can also take advantage of business construction loans.
About Business Construction Loans
Business construction loans are small business loans that cover hefty construction expenses, including materials, on-site facilities, temporary machine parts, and wages for crew members. –fundera.com
As with homeowner construction loans, there are several types of financing options for construction business owners. You can choose from the best business construction loan type based on your company’s size, age, and loan eligibility:
- Business credit cards – Construction companies at any level are eligible to apply for business credit cards. The construction company owner is responsible for monitoring employee use. It’s a good way to track spending and also a good way to build solid credit for future business construction loans.
- Business line of credit – This loan is a good option for a growing construction company. The lender provides a set amount of money from which you draw when you need it. You make interest payments on the amount of money you withdrew.
- Equipment financing – This is good for new construction companies. The lender loans 100% for your equipment purchase and the equipment serves as collateral.
- SBA 7a – This is the Small Business Administration’s most common loan and its requirements are stringent and well-established construction companies qualify easier. The loan can only be used for:
- Debt consolidation
- Equipment purchase
- Working capital
- SBA CDC/504 – This CDC/504 government-backed loan is best for established construction companies. Loan qualification requirements are stringent. The money can only be used for fixed assets:
- Leasehold improvement
- Real estate, land/existing buildings