Options for Construction Loans


When a contractor is given a large scale construction job, there is little time to spare and a lot of money at stake. The initial investment needed for a construction job can be massive and a small business owner will need help financing the costs. There are multiple types of construction loans available to contractors and picking the right one will be based on individual circumstances.

Traditional Loans

Borrowing money from a bank or the SBA can be tedious. There is a vast amount of paperwork to be completed and no way of knowing for sure if the financing will even be granted. Since the construction industry can be very up and down, there is high risk for a bank or the SBA to lend any money. These loans might only be beneficial if a contractor can show great credit and afford the wait time.

Equipment Leasing

Construction loans can also come in the form of equipment leasing. This is where large pieces of equipment or machinery are basically rented from a bank by a contractor while payments are made monthly. This is beneficial for the bank as they have a way of recouping their losses if there is a default. If a payment is missed by the contractor, the equipment or machinery will be taken back by the bank.

Using Collateral

If a contractor already owns large pieces of equipment or machinery, then they can put them up as collateral for a loan. The contractor’s equipment will serve allow the lender to recover any losses should the contractor default on the loan. These loans are more structured and will result in smaller payments than an unsecured loan. Equipment is not the only available option for collateral either. Any real estate holdings that may be owned can also be used to obtain a loan. While rates can be lower using collateral, all construction loans are subject to the small business owner’s credit score.

Lower Interest Rate Term Business Loans

Another option is a loan with a lower interest rate, but a longer repayment term. These loans are a fairly lucrative, but have more stipulations in order to qualify, including decent credit and proven profitability. Most small business owners are much more likely to qualify for these than a loan with a bank or the SBA.

Options for construction loans are still available for contractors with bad credit; however they come with higher interest rates and longer payment terms. These longer terms are still more viable than any cash advance program as the monthly payments will still be affordable. There are always options for any small business owner in the construction industry.


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