Funding a construction company is not an easy task! There are many costs associated with launching or just running a construction business. You have employees that demand regular pay, rent for your office space, high input costs of supplies and material, and of course, clients who have an uncanny habit of paying late. While self-financing is always an option, it leaves the business financially exposed due to the considerable funds required. In an attempt to avoid falling into a financial pit, most business owners turn to small business loans to fund their construction companies. Whether you are a new player or an established construction company, read on for an analysis of 3 of the best ways to finance your construction company.
1. SBA Loans and Bank Loans
SBA loans are usually the first resort for many small businesses, including construction companies. They particularly appeal to construction start-ups due to the high loan amounts, low-interest rates, and relatively flexible terms. But what is an SBA loan? It is a bank loan that is offered by SBA-approved lenders and guaranteed by the U.S. government’s Small Business Administration.
You can seek construction financing through either the SBA 7(a) or CDC/504 loans, depending on your financing needs. If you want to buy long-term equipment or purchase land, it is advisable to apply for the CDC/504 loan. SBA 7(a) loan is ideal for purchasing equipment, supplies, debt refinancing, working capital, and operational expenses. If none of the SBA loaning options meet your financing needs, or you do not qualify, you can apply for other construction loans from banking institutions.
But SBA and bank loans are not as straightforward as you might assume. The approval process is quite tedious, involving up to 3 months of scrutinizing your business and personal credit. So what do you do when the first financing option backfires? You move on to the next equally attractive construction loan available – i.e. business term loans.
2. Business Term Loans
If you don’t qualify for an SBA loan, business term loans might be your best source to finance your construction company. These loans are often offered by alternative lenders or non-bank financial institutions such as the Mint Financial Group.
Business term loans give construction companies access to lump sums at a faster rate than traditional banks. The process of acquiring construction finance is also significantly easier and more straightforward. In comparison to SBA loans, the only drawbacks of business term loans are the higher interest rates and smaller amounts offered. However, it is essential to note that interest rates and other repayment terms vary from one vendor to another – so make sure to check the favorable terms offered by Mint Financial Group.
3. Equipment Financing
Do you plan on buying a tractor, crane, bulldozer, or similar expensive heavy-duty construction equipment? You can acquire funding through equipment financing. This option is ideal for contractors whose job description includes big commercial or industrial projects – it allows you to take your business to the next level. But what does it entail?
The application process for equipment financing typically involves finding a vendor who will provide the construction equipment, and submitting a financing request to a reliable lender. Upon approval, you gain access to the equipment you need to refresh your construction venture. You are then obligated to make monthly payments to your lender as per your agreement – you become the owner upon full repayment.
The main advantage of this source to finance your construction company is the immediate access to the equipment and the low-Interest rates (relative to other construction loans). But what if I can’t repay the construction loan as agreed? Failure to honor your obligation may lead to the loss of the equipment – it acts as collateral.
Bottomline
It’s clear that there are a lot of construction financing options available to business owners launching their companies, or seeking to expand their venture. But as with all critical decisions, due diligence is a necessity. Take your time to conduct market research until you settle on a construction loan that works best for your specific business needs. Whichever construction finance option you choose, you can always rely on Mint Financial Group to offer the best rates. As your reliable lender, we take an interpersonal approach to all your financing needs.
