Taking out a construction business loan has a wide variety of benefits for your construction company, from access to additional capital for business growth to improving your project management and gaining a competitive advantage in the industry.
However, before you go ahead and apply for a construction loan, there is one important step that you will need to make – researching for the best construction loan lender to find the one that fits your needs and goals.
So, how can you choose the best construction loan lender in 2024? We will give you our top tips – but before that, let’s take a look at some of the benefits of business construction loans:
What Are the Benefits of Business Construction Loans?
No matter how careful and detailed your business plan is, construction projects can often become unpredictable, and you may find yourself dealing with unforeseen challenges or unexpected expenses.
When this happens, business construction loans can be a game-changer – here are some of the main benefits that you can leverage to your advantage:
- Opportunity For Strategic Investments – Construction loans allow you to invest in innovative construction techniques or sustainable practices for long-term success.
- Access to Additional Funding – They provide you with the necessary funds to take on new projects without straining or depleting your cash reserves.
- Covering Upfront Costs – In addition to capitalizing on new opportunities, you can use construction loans to cover significant upfront costs such as labor or material.
- Improving Cash Flow Management – Construction loans help you maintain a smooth cash flow by covering ongoing expenses or handling seasonal fluctuations.
- Opportunities For Business Expansion – You can use the extra capital to open new offices, expand your geographic reach, and take on larger projects.
- Gain a Competitive Advantage – Business construction loans provide you with the financial backing you need to bid on larger or more complex projects.
Now that we know the main benefits of construction loans, let’s take a look at some of the most effective ways to find the best construction loan lender this year.
1. Understand Construction Loan Types
If you are looking for the best construction loan lender that fits your needs and goals, the first step that you will need to take is to get a good understanding of the different construction loan types.
This is important because not all lenders offer all types of loans, and you want to make sure that you choose a financial institution that offers exactly what you are looking for. Here are some of the most common ones:
Asset-Based Lending
Asset-based lending, abbreviated as ABL, involves borrowing against the value of your assets – for example, inventory, accounts receivable, machinery, or real estate.
This type of loan provides you with working capital based on the value of your assets, as opposed to your credit history, as it happens with other loans. To qualify with National Business Capital, you will need to have $500,000 in current receivables.
Business Line of Credit
When it comes to choosing the best construction loan lender for your needs, another type of financing that you need to have a good understanding of is a business line of credit.
It’s not precisely a loan but a flexible form of financing that provides you with a set amount of funds that you can draw from as needed. It’s similar to a credit card but usually has higher limits and lower interest rates, and it’s perfect for your short-term needs.
Business Term Loans
Business term loans are among the most common types of business loans, and they provide you with a lump sum of capital that is repaid over a fixed period with regular payments.
You can use it for virtually any purpose in your construction project – from working capital to expansion, capital investments, and major purchases. Term loans can be short-term, mid-term, or long-term, and interest rates can be fixed or variable.
Contractor Business Loans
Contractor business loans are an excellent option for your construction company. However, if you are on the quest to find the best construction loan lender, it’s important to keep in mind that not all financial institutions offer them.
A contractor business loan is a specialized financing tool that comes with unique terms and conditions that align with the cyclical, seasonal, and unpredictable nature of the industry.
Equipment Financing
Equipment financing involves borrowing funds specifically to purchase equipment, which can be a great option for your construction project where equipment can be very expensive. For this type of financing, the equipment itself usually serves as collateral for the loan.
The equipment itself often serves as collateral for the loan. To qualify for equipment financing with NBC, you will need a 700+ FICO score and $500,000 in annual revenue.
Revenue-Based Financing
When it comes to choosing the best construction loan lender, another form of financing that you will often have at your disposal is revenue-based financing. It provides you with capital in exchange for a percentage of your future revenue.
This loan type is characterized with variable repayments, lack of fixed repayment schedule (they are aligned with business performance), and quick access to funds.
SBA Loans
SBA loans are loans that are partially guaranteed by the US Small Business Administration, and they are designed to help small businesses obtain financing that they might not otherwise qualify for through traditional lending channels.
However, keep in mind that the process can be quite lengthy, often taking up to several months for you to get approved and receive the funds. That’s why National Business Capital has expedited the process – you can get approved and funded in just 45 days!
2. Check Loan Terms
When looking for the best construction loan lender, another consideration that you will need to make is the loan terms. This includes, but is not limited to:
- Interest Rates – Are they fixed or variable? Fixed ones remain the same throughout the loan term, while variable ones fluctuate based on market conditions.
- Repayment Terms – What is the duration of the loan? They can be short-term (6 to 18 months), mid-term (3 to 5 years), or long-term (up to 25 years).
- Payment Frequency – Does the payment frequency align with your business’ cash flow patterns? It can be monthly, quarterly, or bi-weekly.
- Fees & Charges – What are the fees charged by the lender for processing the loan? Are there any prepayment penalties? What are the late payment fees?
- Collateral Requirements – Does the lender require collateral for the type of loan that you are looking to apply for? In that sense, loans can be secured or unsecured.
- Loan Amounts And Limits – What is the maximum and minimum loan amount with this type of loan? Make sure that the lender can provide the amount you need.
- Approval Time And Process – The speed of approval matters, especially if you need the funds urgently. With NBC, you can get funding in less than 48 hours!
- Documentation Required – When choosing the best construction loan lender, check the documentation that they require. For example, banks are much more stringent with documentation and eligibility criteria than alternative lenders.
3. Understand The Approval Process
As we just mentioned briefly, another consideration to keep in mind when choosing the best construction loan lender is the approval process. What does it look like, and how fast is it? You will want to look for a fast and streamlined process – especially if you need the funds urgently.
For example, if you are applying for a business construction loan with a bank, you can expect very stringent requirements, lack of flexibility, and a lengthy application process – often involving extensive documentation and multiple steps.
Alternative lenders, however, are much faster and more lenient when it comes to their approval process. Here’s what the application process looks like with Specialty Finance Group National Business Capital:
- Apply Securely Within Minutes – Use our quick and convenient application form to move through the process within minutes. Upload your documents with no risk.
- Review Your Offers – Quickly and easily compare dozens of offers while getting expert advice from our team. Choose the one that fits your needs the best.
- Receive Your Money – Once approved, you can receive your money in hours. Leverage the opportunity to grow your business and tackle on new challenges.
Qualifying For a Construction Business Loan With NBC
If you want to qualify for a construction business loan, look no further than National Business Capital. With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.
Are you ready to get started? Apply here.
Frequently Asked Questions
What are the eligibility requirements for business construction loans?
Eligibility requirements for business construction loans typically include a good personal and business credit score, demonstrating a strong financial history. Lenders often require detailed financial statements, tax returns, and a solid business plan outlining the project and its potential for success.
Collateral may be needed, especially for larger loans. Additionally, lenders look for industry experience and a track record of successfully completed projects.
Can I refinance or restructure the loan in the future if needed?
Yes, you can often refinance or restructure a construction business loan in the future if needed. Refinancing allows you to replace the existing loan with a new one, potentially at better terms, such as lower interest rates or extended repayment periods.
Restructuring can involve modifying the terms of your current loan to better match your cash flow and financial situation. However, it depends on the lender’s policies and your creditworthiness at the time of request.
Are there any restrictions on how the loan funds can be used?
Yes, there are often restrictions on how construction business loan funds can be used. Typically, the funds must be allocated to specific purposes outlined in the loan agreement, such as purchasing equipment, covering labor costs, buying materials, or financing specific construction projects.
Lenders may prohibit using the funds for unrelated expenses, such as personal use or speculative investments, to ensure the loan supports business growth and project completion.
Are there any pre-payment penalties?
Yes, some construction business loans may include pre-payment penalties, which are fees charged if you repay the loan early. These penalties compensate the lender for the interest they would lose from early repayment.
It’s essential to review the loan agreement carefully to understand any pre-payment penalties or conditions. Some lenders may offer loans without these penalties, providing more flexibility if you plan to pay off the loan ahead of schedule.
Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.
Joseph Camberato
Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.
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