Construction Equipment Loans, Business Loans & SBA (7a)

It’s possible to personalize your new living space by building or renovating a property from the ground up. Nevertheless, development may be a costly option, much like buying a property. Fortunately, when it comes to purchasing property and covering the costs of construction, construction loans can help.

Nonetheless, there are various kinds of construction financing to pick from, and the application and approval procedure is more intricate than it is for a regular mortgage. By explaining how the best construction loans work, what sort of financing they might be, and what you’ll meet to qualify, we’ll assist you to demystify the process.

1. Construction Equipment Loans

A lending company, such as a bank, lends money to a company so that it may buy heavy equipment like bulldozers. For smaller firms that want to operate in building or similar sectors but don’t or can’t spend the cash up front, financiers provide these loans. After that, the debt is repaid with interest over a set period of time. The heavy machinery itself is normally used as collateral in financing arrangements for huge machinery.

Without the appropriate equipment, your company will be unable to proceed. Having the right equipment is a vital part of your company, from big heavy machines like forklifts to huge medical machines. The high cost of the equipment should not stop your business growth. You may get up to $5,000,000 in funding for purchasing or leasing new or refurbished commercial equipment with the aid of equipment financing and leasing.

Requirements for Construction Companies

Qualifying for heavy equipment loans is easier than qualifying for other kinds of financing, such as a bank loan. You have an excellent chance of qualifying if you’ve been in business for many years and have a credit score of 680 or higher. Your credit rating and how long you’ve been in business both contribute to your qualification probability. However, if you do have challenged credit then there is still a good chance you can get approved since the construction loan will be secured by the equipment you are financing.

Construction Business Loans

2. Business Lines of Credit For Construction

If you have short-term needs like buying inventory or payroll, then a business credit line is a great flexible financing option. You can buy equipment, hire personnel, purchase small tools, pay invoices, and more with it. And because a line of credit is revolving, you can use it as many times as you want. As soon as you repay what you’ve used, those funds become available to you again.

Since you don’t get a lump disbursement at once, lines of credit are more akin to a business credit card than a business construction loan. Instead, you use the line of credit to pay for company costs and only repay the lender for the money spent.

Line of Credit Requirements

It’s not all that difficult to get a line of credit for a company. While applying for most lines, you’ll want a credit score of 560 or higher. You’ll also need at least $150,000 in annual income and at least six months in operation. You’ll need to have some collateral in place if you’re hoping to obtain a secured line of credit. That might help you negotiate a better interest rate on your credit line.

3. Construction SBA 7(a) Loans

In times of economic difficulty caused by events like the coronavirus (COVID-19) pandemic, the US Small Business Administration (SBA) is a federal agency exclusively designed to assist small businesses in obtaining funding. The SBA does not, contrary to popular belief, pay any of the money. Instead, it pledges a portion of certain loans based on certain standards. Since lenders are more likely to provide financing to people like you when there is less risk involved, they have a much lower risk.

Small businesses can get enviable interest rates and terms with SBA loans for construction companies. For many small business owners, the amount of money saved in interest is a true game-changer, which is why these lower rates are considered the greatest benefit of a government-backed business loan. SBA loans have lower down payment standards as well. The risk of lending to a “risky” borrower is reduced for most business loans with large down payments. Nevertheless, SBA loans have lower down payment requirements than conventional loans; for example, a 7(a) or 504 SBA loan only needs 10% down.

Lastly, you may be able to borrow more money than would have been available through other commercial loans using an SBA loan. There is less risk for the lender when they are government-backed, resulting in lower interest rates and bigger loan sizes for the borrower. Your company may progress to the next level with access to additional funding. Ultimately, SBA financing may be used to develop and grow enterprises, strengthening your creditworthiness for further funding options. If your company has been suffering since the start of the pandemic, better credit may allow you to qualify for larger amounts and different types of financing. An SBA loan might be useful if you need to jump-start your firm.

Requirements To Recieve SBA 7(A) Financing

You’ll need to gather all of the required documents after you’ve chosen an SBA loan to apply for. This phase might take a long time to complete depending on your record-keeping. You’ll need the following documents for an SBA loan:

  • Completed SBA loan application form
  • Personal background statement
  • Personal financial statement
  • Loan proposal
  • One-year financial projection for your business
  • Current profit and loss statements
  • Complete list of current business owners
  • Business License
  • Loan application history
  • 3 years of business tax returns
  • 3 years of personal tax returns
  • Year-to-date balance sheet
  • Debt schedule

Lenders are required to investigate your application before granting you this government business loan for your commercial construction company, but the SBA does not set numerical standards for determining your creditworthiness.

When deciding if you qualify for an SBA loan, a lender will likely look at the following:

Is personal credit required to get a construction loan?

Good credit is required most of the time, with a score of 690 or higher. Depending on your lender and other requirements, you may have some leeway in the SBA’s absence of a credit score requirement.

Business credit & how it affects your application

You’ll want a solid business credit history, similar to your own. To evaluate your business credit history and prescreen 7(a) loan applications, the SBA often employs the FICO Small Business Scoring Service or SBSS. To pass the prescreen today, you’ll need a score of 155 or higher (scores range from 0 to 300), which is much lower than in the past. A bank might choose to proceed with your application even if you fail the prescreen. Lenders, on the other hand, may set their own SBSS score requirements above those required by the SBA.

Operating Time in business

While several lending institutions might accept new firms, the majority will demand that you have two or more years of operation.

Business finances

You’ll need to provide strong yearly sales and cash flow forecasts. You shouldn’t have a lot of debt that you can’t afford to take on as additional financing. Your debt service coverage ratio (DSCR) — which compares your expected operating earnings to your existing debt obligations — should be 1.15 or higher.

Is Collateral Required?

When feasible, lenders for many SBA loan programs are obliged to get collateral. Real estate, equipment, and inventory are all acceptable forms of collateral. Commercial construction loans cannot simply be denied based on a lack of adequate collateral, however. A loan underwriter will contact you after your loan application has been approved by the lender of your choice. Make sure to respond to any queries you get as soon as feasible so your loan application can move forward.

4. Unsecured Small Business Loans

A lump sum of money is given to a borrower in the form of a term loan, which is paid back at set intervals over a specified period of time. Term loans have an interest rate that may be fixed or floating and can start at 6%. One of the most well-known forms of small-business financing is business-term financing. You get a single payment of money from a lender and repay it (with interest) on a set period like you would with a car loan or mortgage. Depending on your lender and your company’s qualifications, repayment periods may be days, months, or years.

Banks, credit unions, and internet lenders all provide business-term loans. Term loans with lower interest rates and longer durations are more common at banks and credit unions, although they have tighter standards. While online lenders are more likely to fund quickly and have less stringent standards, they frequently charge higher interest rates.

Unsecured Business Loan Requirements for Construction

To apply for a term loan, you’ll need some materials and documents to tell lenders a little about your business and why you’re looking for funding. Have your business plan, including the reason you’re looking for funding, along with bank statements, taxes from the past three years, any proof of revenue, and any collateral you might be able to offer if necessary. You’ll also need the loan application filled out and ready to go. Remember, each lender will have its terms and requirements. Plus the fees for each loan product. So evaluate the offerings carefully before making a decision. And be sure to submit all your paperwork so lenders can have a clear view of your construction business.

To qualify for a term loan, what will lenders use?

  • Your credit score- the better the score the better the terms.
  • Time in business- Proof of payment history and performance helps show lenders you have the experience to weather the storms
  • Collateral- Some lenders may require collateral such as real estate, but not all.
  • Financials- business bank statements, tax returns, or financials such as P&L and balance sheet.

For best results, we advise having a 640+ FICO score, 2 years time in business, and stable annual revenues of $150,000 per year. Not all unsecured business loans are created equal, make sure to review requirements with the lender you decide to work with.

Frequent Questions

How long does it take to get approved for a construction business loan, and how much time will it take to close on the deal once approval

You don’t want to wait long to get working capital once you’ve decided you need it for your company. Unfortunately, loan companies do not operate in sync with you. As a result, understanding the time it takes to obtain financing―from the moment you submit your proposal until the moment you receive your finance money―can be beneficial.

Do I need collateral on this type of loan, and if so, what should it be used for?

Some firms, nonetheless, have access to unsecured construction loans. These are small business loans that do not need collateral and are based on the borrower’s creditworthiness. Personal and business credit scores, as well as the company’s overall health, time in operation, and regular cash reserves are often examined by lenders.

To reduce the risk of losing money on a construction loan, lenders use collateral. Many variables, such as your credit score, the kind of lender, and the nature of the collateral, influence the quantity of collateral required. To secure a business loan, some lenders will allow or require borrowers to pledge personal assets.

How much money can I borrow from a lender for construction business loans?

It’s important to understand that construction loans may be created to address a variety of issues. For the same project, you might need to hire more workers, pay upfront to vendors, or get special permits. Even if your contracting business’s expenses occur at different times, we can adjust the amount and duration of your loan to fit. Every loan option has its own

In Closing…

Of course, sifting through all the small business financing options on the market can be overwhelming. Not every kind of financing is appropriate for your construction company, that is unquestionably true. Yet, you may nevertheless obtain some sort of funding that suits your construction firm and its requirements, even as it expands and develops if you look for all of these tiny business loans for building firms.

Apply Now
Explore Business Funding Solutions

Disclosure Agreement

By clicking “Submit”, you (i) consent to receiving calls and texts, from AMP ADVANCE Business Loans and those acting on its behalf at the telephone number you have provided above (including your cellular phone number); consent to receiving telemarketing calls or texts at this number using an automatic telephone dialing system by, or on behalf of, AMP Advance or its affiliates; agree that this consent applies even if the number you have provided is currently on any state, federal, or corporate Do-Not-Call registry; and understand that you are not required to provide this consent as a condition of receiving any credit or services from AMP ADVANCE and that you may apply for business credit by contacting us directly; and (ii) acknowledge that you have read AMP ADVANCE Terms & Conditions , Privacy Policy and SMS Wireless Policy. You understand that you may opt-out of receiving communications of your choice from AMP ADVANCE as provided in the Privacy Policy and SMS Wireless Policy.