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In construction, your top priority is to land profitable new projects while ensuring timely progress on existing ones. But in the construction industry, it’s common for general contractors to receive delayed payments for completed work.
General contractor loans can help business owners leap over this gap and continue building on this progress.
When working capital doesn’t cover what you need to lay out for new expenses, you’ll have to turn elsewhere for funding. Here’s what you need to know about qualifying for, obtaining, and using general contractor loans.
What Is Contractor Financing?
Contractor financing, also known as general contractor loans, refers to a financing option designed for construction businesses. These loans provide contractors with the necessary capital for expenses like payroll, materials, and equipment. They are tailored to accommodate the unique cash flow and project timelines of the construction industry. In other words, they give you the cash you need to pursue new opportunities and pay employees while awaiting payments in your contracting business. As a product of the industry, most general contractors don’t receive payment until up to three months after completing a project. While this delay might be common, it also makes it difficult to take the next step forward in your business. Cash flow shortages can also make managing day-to-day expenses in your business challenging. That’s where general contractor loans come into play. By getting extra cash on hand, you can cover the expenses necessary to keep things moving and take your business to the next level.How You Can Use General Contractor Loans
Even though you’re managing a building project on behalf of somebody else, it’s your job as the general contractor to cover expenses upfront. To do so, you need cash on hand. General contractor loans help give you the cash you need to cover all the expenses you might incur while operating your business. While some products may have restrictions, you can often use cash to cover the following:- Payroll
- Building materials and supplies
- Insurance policy costs
- Unexpected project complications
- Bidding on new projects for the future
- Getting bonds to cover potential issues
- Buy new equipment (or update old machinery)
What Are the Terms of General Contractor Loans?
General contractor loans can vary when it comes to terms depending on the lender, the type of loan, and your creditworthiness - as well as the specific characteristics of your construction project.- Loan amount - Can range from $10,000 to several million dollars
- Interest rate - 4%-15%, depending on the loan amount and your credit history
- Repayment term - 3 months to 3 years for short-term loans and up to 15 years for long-term loans
- Collateral - Can include business assets, equipment, or future receivables
- Fees - There may be origination fees, processing fees, or prepayment penalties
What Are the Requirements for General Contractor Loans?
The requirements for general contractor loans may vary depending on the type of loan you’ve chosen, as well as the lender you are applying with. However, they most commonly include:- Financial statements, such as balance sheets, income, and cash flow statements
- Good credit score, both personal and business; ideally, above 680
- Recent bank statements, usually for the last six months to a year
- Strong business plan, outlining the viability and characteristics of the project
- Up-to-date contractor licenses and permits, if applicable
- Builders risk or another type of insurance, depending on the project