Construction Business Loans & Financing Options

If you are a construction company that needs to finance projects you may want to look into a line of credit. In most cases, you will save money on interest using a line of credit. If you are a construction company or contractor you should receive payment from your client sooner than later meaning you may only need to borrow the money for a short period. Deciding on a commercial build is not something most business owners do every day. If you are choosing to build new construction or remodel for a business, it?s most likely because you have no other options. Whether you need to build, renovate, or remodel you can use construction business financing.

What is construction business financing?

Construction business financing helps businesses finance materials and project costs to create or expand locations. Construction companies may also use financing to cover expenses while completing projects for clients. In most cases, the lender will issue a lump sum of money determined by your loan approval. Depending on what type of loan you choose, there may or may not be spending restrictions on the funds. Most lenders require monthly repayment. Some lenders may delay the start of repayment as they understand you may not be generating revenue right away. If you use a fixed loan for construction business financing the interest rate and monthly payment should not change during the loan term. This can be easier for businesses to manage and eliminate any surprises. Commercial loans can be risky for lenders meaning the approval process can be lengthy and you may be required to put money down. Most lenders require a 10% to 30% down payment. If you are a small business, you may want to look into SBA loans. SBA loans are designed to help small businesses get started by providing them more favorable loan requirements.

What is a construction loan?

In simplest terms, a construction loan is a type of loan designed for businesses building new construction or expanding existing construction. Most construction loans are created to work in conjunction with the building process. Many construction loans do not require regular payments until completed stages of construction occur.

What types of construction loans are available?

There are many types of construction loans available. You should explore each option to determine which one is best for you and your business. Many business owners need to use more than one form of financing. If you are looking for a way to cover day-to-day expenses or purchase equipment or just about anything else during construction, you may want to use a personal loan. Acorn Finance offers personal loans up to $100,000 with rates starting at just 5.73%. If you own or are starting a small business you should start by trying to qualify for an SBA loan. SBA lenders use guidelines issued by the government to help small businesses qualify for financing. In the event an SBA loan is defaulted on, the SBA can repay up to 85% of the loan, reducing risk for the lender. Let?s explore different types of construction loans?

#1. SBA CDC / 504 Loan Program
SBA 504 loans are available through Certified Development Companies (CDC) and offer long term and fixed-rate financing for small businesses. In order to qualify for an SBA 504 loan, you must be a sole proprietorship, limited liability company, partnership, or corporation. In addition, business net income should not exceed $5 million for two full fiscal years prior. SBA 504 loans can be used for purchasing a building or land, renovation, equipment, soft costs, and more. Most SBA 504 loans offer terms between 10-20 years and fixed interest rates based on US Treasury rates. In addition, they require a personal guarantee from anybody who owns at least 20% of the business. Most SBA 504 loans also require collateral and a 10% down payment. SBA 504 loans are one of the best options for financing business construction.

#2. SBA 7a Loan
SBA 7a loans can also be used for business construction, improvements, purchasing equipment, and more. Compared to SBA 504 loans, SBA 7a loans have a lower loan minimum of just $50,000. However, SBA 7a loans also have a lower loan maximum of $5 million. In most cases, SBA 7a loans have variable interest rate offers however some lenders may offer fixed rate options. The repayment terms of SBA 504 and SBA 7a loans for real estate are both 25 years. SBA 7a loans often require more than a 10% down payment. The loan structure of an SBA 7a loan may be negotiable depending on the risk level.

#3. Bank Loans
Most banks offer commercial construction loans that business owners can qualify for. Bank loans may be harder to qualify for with less favorable terms than other options. However, in some cases, they may be the option. While there may be a lot of variables in offers, most bank loans have a maximum term of 25 years and a minimum down payment of 10%. Most banks base approval on your credit and the risk of the loan. No matter what kind of business construction loan you apply for, you will most likely need a detailed business plan and financial documents. Some banks can offer SBA loans.

#4. Online Loans
Online lenders can offer SBA loans, personal loans, business loans, and more. Online loans can be similar to bank loans. However, many online lenders offer more competitive rates and terms. Online lenders typically have less overhead allowing them to take more risks when loaning money. In addition, online lenders may be easier to qualify for than other options. If you want to secure a business construction loan from the comfort of your home or office you should visit Acorn Finance. Acorn Finance partners with dozens of reliable lenders that are ready to loan you and your business money.

What are the requirements for a commercial construction loan?

There are a few main factors lenders look at when qualifying borrowers for a commercial construction loan. Most lenders put their main focus on credit score, debt-to-income ratio, and business plan. Using these three factors lenders can assess the risk of the loan. If the risk of the loan is high, lenders may offer a higher interest rate or request more money down. In most cases, lenders like to see a debt-to-income ratio of 43% or less and a credit score of 680 or higher. In addition, most commercial construction loans require at least 10% down.

What credit score is needed for a new construction loan?

In most cases, you need a 680 or higher to qualify for a new construction loan or SBA loan. If you have a credit score lower than 680 you should still try to qualify. Some online lenders specialize in business loans for bad credit borrowers. In addition, some lenders may be willing to revise terms to approve a loan for a bad credit borrower. If you have credit challenges we highly recommend using a cosigner with good credit and consistent income.

What are commercial construction loan rates?

If you are applying for a commercial construction loan you can expect rates to vary from 4% to 12%. There are many factors in addition to credit score that can impact the interest rate you are offered. Other factors can include risk and debt-to-income ratio. It?s important to have a detailed business plan and efficient financial documents prepared before applying for a commercial construction loan. In addition, you should keep in mind there may be fees associated with commercial construction loans. Some fees that you may be charged include guarantee fees, documentation fees, origination fees, processing fees, project review fees, fund control fees, and more.

What does a construction loan pay for?

Business construction loans can pay for the land, labor, and materials of a new construction. In some cases, a business construction loan can pay for additional expenses as well. Some lenders may have spending restrictions while others may not. In most cases when applying for a business loan you will be asked to submit a business plan and outline what you need a loan for. Your approval should state what the funds can and cannot be used for.

How to apply for construction business financing?

One of the fastest ways to apply for construction business financing is through Acorn Finance. Here are 3 easy steps to apply?

#1. Submit a short loan application
#2. Receive multiple personalized pre-qualification offers
#3. Select an offer & finalize your loan

Secure Construction Business Loans Today

In conclusion, you have plenty of options when it comes to construction business financing. Acorn Finance partners with dozens of credible lenders that offer financing for contractors, business owners, and homeowners.

Pre-qualify for construction business financing. . . apply online today!