Contractor Business Loans

Fundamentally, a contractor business loan is a type of specialized financing designed specifically for the construction sector. Unlike traditional loans and financing, loans for contractors often come with unique terms and conditions that align with the cyclical, seasonal, and unpredictable nature of the industry.

Funds arrive either in a lump sum or credit line format, where the borrower draws as needed from their total credit limit. Contractors can use their financing for:

• Equipment and tools
• Materials and supplies
• Cash flow management
• Hiring
• Marketing
• Supporting a higher workload
• Unexpected growth opportunities/challenges

Whether you’re looking to handle immediate expenses or finance long-term projects, specialized contractor financing offers the capital and structure needed to meet contractors’ unique needs.

There is significant variation in the contractor loan market, with each route having its own set of advantages and disadvantages. Here are the main types of loans that contractors can utilize:

• Short-Term Loans: Ideal for contractors in need of a quick cash boost, short-term loans offer a convenient solution for immediate financial requirements. Despite the higher interest rates, these loans are appealing to many due to their ease of access and minimal paperwork requirements.
• Long-Term Loans: For contractors looking to make significant expansions or large-scale purchases, long-term loans provide the opportunity to secure larger amounts of funding at more favorable interest rates. These loans offer a longer repayment period, but they typically involve collateral and a more thorough approval process.
• Lines of Credit: Business lines of credit offer the utmost flexibility, allowing contractors to draw funds as needed and pay interest only on the amount used. This option is ideal for managing fluctuating cash flow needs, though it may come with fees and requires a solid credit history for approval.
• Revenue-Based Financing: Catering to businesses with steady revenue streams, this option allows contractors to access capital based on their monthly or annual revenue. Repayment is usually calculated as a percentage of the business’s revenue, which allows for flexibility as it aligns with the company’s income levels. This can be especially beneficial for contractors who have fluctuating project timelines and payment schedules.
• Equipment Financing: This type of loan, specifically intended for buying equipment, offers lower interest rates and directly increases the business’s operational capacity by using the purchased equipment as collateral.
• Invoice Financing: Invoice financing allows contractors facing payment delays to receive an advance on their unpaid invoices, which improves their cash flow without having to wait for client payment. Although fees will have a negative impact on total revenue, this alternative could be crucial for effectively handling short-term liquidity.

National Business Capital’s longstanding lender relationships work in contractors’ favor. Our Business Finance Advisors negotiate on behalf of your business to achieve specialized structures and contract exceptions that allow you to Grow Your Business to Greatness with as little friction as possible.

The process begins with the application, where contractors must provide details about their business, including financial statements, credit score, business plan, and the purpose of the loan. Lenders use this information to assess the borrower’s creditworthiness, the business’s financial stability, and the feasibility of the business plan.

Some documents lenders may ask for include:

• Financial statements (Balance sheets, income statements, cash flow statements, etc.)
• Credit score and history reports
• Business plan
• Tax returns
• Bank statements
• Collateral documentation
• Business legal documents (Licenses, permits, articles of incorporation, commercial leases, franchise agreements, etc.)
• Debt schedule
• Proof of ownership
• Insurance information
• Projections and forecasts

Once approved, businesses enter the contract negotiation phase, where they’ll work with their lender to refine the offered terms. Keep in mind that over-qualified businesses hold stronger negotiating power than those who just barely meet minimum requirements.

Both you and the lender will need to agree on a contract for the transaction to move forward, but don’t feel pressured to accept an offer that doesn’t work for your business. Once you’ve come to an agreement with your lender, you’ll finalize the contract, receive your funds, and begin the repayment process.

What to Know About Repayment Terms

Repayment terms vary significantly depending on the type of loan. For instance, short-term loans may have a repayment period as short as 90 days, whereas long-term loans can extend up to 10 years.

The repayment schedule could be daily, weekly, or monthly, typically determined by the business’s cash flow and the specific loan product. Some lenders offer unique repayment cycles, but these are granted on an as-needed basis to qualified borrowers.

The term “traditional financing” refers to more generic loan options such as home mortgages, personal loans, and general business loans, whereas contractor business loans are specifically tailored to meet the unique needs of contractor businesses. These more specialized options are intricately tailored to meet the needs of contractors, like handling delayed payments from clients, financing specific equipment purchases, or covering operational costs during off-seasons. The loan structures, terms, and eligibility requirements are all designed to accommodate the cyclical nature of construction work.

The main differences lie in the eligibility criteria, application process, use of funds, and repayment terms.

Eligibility Criteria

• Contractor Loans: These loans are typically more accessible to contractors who may not have perfect credit scores but have proven cash flows or strong receivables. Lenders often consider the unique aspects of the contractor’s business model when determining approval, including the predictability of future earnings based on signed contracts.
• Traditional Financing: Traditional financing usually requires stronger credit scores and a longer history of profitability to reach approval. Lenders assess risk based on rigid criteria that might not take the seasonal or project-based nature of a contractor’s work into account.

Application Process

• Contractor Loans: The process is often streamlined to accommodate the fast-paced nature of construction projects. Lenders who specialize in this industry are familiar with the challenges contractors face and may require less traditional forms of proof of profitability, such as upcoming project contracts instead of past income statements.
• Traditional Financing: Applying for traditional financing typically involves a more comprehensive and time-consuming review process. This might include detailed scrutiny of financial statements, tax returns, and other documents that prove the business’s viability over the long term.

Use of Funds

• Contractor Loans: These loans are specifically tailored to support project-specific requirements such as purchasing equipment, hiring labor, or procuring materials ahead of project payments. The use of funds is well-suited to the project-driven financial cycles of a contractor’s business.
• Traditional Financing: Traditional loan funds can be applied to a wider range of projects, such as marketing, organizational infrastructure strengthening, and expansion. These loans are not designed to meet the immediate or short-term financing needs of specific

Repayment Terms

• Contractor Loans: Repayment terms are often aligned with the contractor’s cash flow, which may not be consistent year-round. This could include seasonal repayment schedules or balloon payments that coincide with a project’s completion.
• Traditional Financing: Repayment structures under traditional loans are usually rigid and include regular monthly payments regardless of the business’s seasonal variations. This can be challenging for contractors who have gaps in their cash flow.

National Business Capital offers the easiest, most convenient way to explore the contractor business loan options you qualify for. Here’s what to expect:

1. Apply Securely Within Minutes: Move through our streamlined application and securely upload your business documents. After submitting your application, a Business Finance Advisor will reach out shortly to learn more about you, your business, and your unique circumstances.
2. Review Your Offers: Your Business Finance Advisor will identify the lenders most likely to provide you with a competitive offer. You’ll work with our team to prepare your applications in a way that positions your business for the best possible offers, then you’ll compare your offers with expert advice and select the best one for your specific circumstances.
3. Receive Your Money: With a contract finalized, you’ll receive your funds and be able to use them promptly.

We’re your Debt Advisory Group. Click “Apply Now” below to unlock the offers your business qualifies for.