Almost every construction company needs financial assistance at some point. Construction loans for businesses are available in all shapes and sizes from lending institutions of all kinds. These are 5 types of loans that can work best for small businesses in the construction industry:
- Line of credit – A business line of credit works like a credit card, but with lower interest rates. Your loan has a specific APR (annual percentage rate).
- Consistent repayment can improve your personal credit score.
- Funds are available as needed.
- There are no prepayment penalties.
- You only pay interest on the amount you withdraw.
- Short-term – This traditional loan option usually requires no collateral. It’s a fixed, lump-sum loan with a specific interest rate and repayment terms.
- Funds can be available in 1-2 days.
- Loans can be approved even when borrowers have bad credit scores.
- No collateral is needed.
- Equipment – An equipment loan is 100% of the amount of money needed to purchase equipment. The equipment serves as collateral.
- A lower credit score can still qualify for approval because the equipment is collateral.
- Lenders have competitive APRs, so you can shop for rates.
- Most equipment loans have monthly payments.
- The loan process is streamlined.
- Invoice financing – Contractors often have outstanding invoices, so invoice factoring can give you the money you need now.
- The invoices are collateral.
- To get loan approval, the credit rating of your customer is as much or more important than yours.
- You can borrow against 100% of outstanding invoices.
- SBA – Small Business Administration loans are “the holy grail” of construction business loans, according to one lender. They are partially backed by the government and have low interest rates.
- Loan terms can be 10-25 years.
- SBA loans can be used for buying equipment, consolidating debt (but not all types of debt qualify), and more.
- The application process is complex.
- You and your business need good credit and must be able to show how you can repay the loan.
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