Business Loans For General Contractors

Important Notice: For SBA Paycheck Protection Loans consider Fundera

As a general contractor, you’re in a strong position to apply for a business loan. You’re always in demand, and you can quickly develop a good reputation for being honest, hardworking, and reliable. If you’ve built up your business, you may be ready to take the next step and see some serious growth – but how should you go about finding financing for general contractors?

In this article, we’ll guide you through all your options so you can make the best decision for you and your business.

Best Business Loan Options for General Contractors

SBA Loans

While the money is actually provided by the lender, the Small Business Administration (SBA) guarantees a large part of the loan – 85% for loans below $150,000, and 75% for those above. This means the lenders take on far less risk. The SBA 7(a) loans are the most popular, as they offer flexible financing for up to $5million, and relatively low interest rates. The only problem with these loans is because the terms are so good, competition is fierce, and so it’s not uncommon to see businesses wait weeks or even months before they finally get their funding.

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Equipment Financing Loans

For your equipment needs a specific equipment loan might be suitable. Here, once you’ve received a quote for the equipment you require, the lender will finance the bulk of the purchase. Obviously this is not a flexible loan but does have the advantage that the equipment itself is the collateral for the loan.

This can also include Heavy Equipment Financing. Here we are talking about large machines, trucks, heavy vehicles and so forth. Generally, the repayment term will relate to the longevity of the machinery in question, or until the equipment becomes redundant, and so are quite variable.

There are tax benefits for heavy equipment financing. Chief among these is the ability to deduct the entire cost of equipment to a maximum of $1 million in the first year.

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Lines of Credit

A business line of credit works in a similar way to a credit card. Once you have agreed to a sum with the lender, you can then withdraw as much or little finance as you need, paying interest only on the amount borrowed. When you pay back the amount drawn, you then have the limit restored – a so-called rolling system whereby the pot is always available.

A line of credit can often be set up very quickly (as little as 24 hours) and can act as a safety net when you suddenly need capital or to even out your cash flow.

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Term Loans

These loans are often suitable if you’re looking to receive a lump sum in the same way you would a personal loan. These loans often offer a fixed interest rate (though it is sometimes variable) and a fixed repayment term of 2 – 10 years. These loans typically offer higher interest rates, but if eligible, you will receive the money as little as 24 hours, and typically no more than 7-14 days. There are also short term loans available, though the rates on these can be seriously high, so are only really worth considering if you are a new business, or if you’re in an emergency situation.

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Merchant Cash Advance

Strictly speaking, this is not a loan. A merchant cash advance is the sale of a company’s future cash deposits to a commercial lender in order to receive immediate funds. The size can range from as little as $5,000 to as much as $2 million, and repayment terms are reasonably short, typically three months to two years. 

Approval can often be almost instantaneous, in as little as two to 24 hours, and because the agreement is based on cash flow, personal and business credit are of little importance. Because of this speed and simplicity of approval, a merchant cash advance can often be used as a bridge to get everything moving while arranging more traditional financing.

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Invoice Factoring

Cash flow is vital for all businesses and can be a real problem in the construction industry. One of the options for improving cash flow is invoice factoring. Here, effectively, you sell your invoices to a factoring company, they give you around 80% of the value, and it becomes their task to collect. When the invoice is settled, the factoring company will pay you the remainder of its value, less their fee. It is not particularly cheap, but having your invoices paid early can be worth the cost.

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Two Types of Invoice Factoring

There are two main ways that invoice factoring works:

1.   Spot Factoring is where an individual invoice is factored so that you get a single payment at once, right when you need it. Typically, spot factoring is used when a company that usually has adequate cash flow has a one-off problem that interrupts this flow. It’s the more expensive option but solves the immediate problem quickly and effectively, and the project can remain on track.

2.   Contract Factoring will deal with every progress payment and comes at a cheaper rate than spot factoring. The cost of fees will be offset by the regularity of funds coming into the business often 20-40 days earlier than they would otherwise.

Bear in mind that by no means all factoring companies want to get involved with construction. Other business sectors often offer steadier cash flows and payment terms, so it may not be quite so easy to put this into action.

What Are the Best SBA Loans for General Contractors?

There are a lot of SBA accredited lenders out there, both traditional local banks and newer online-based lenders. Two of the best are SmartBiz and EasyFunding:

SmartBiz – SmartBiz has streamlined the application process for SBA loans, and by offering multiple lenders with differing requirements, they make it more likely that you will get an offer that suits your funding needs.

EasyFunding – EasyFunding promises minimum paperwork and cash available in a few days, rather than the weeks or even months.

Which Lenders Offer Heavy Equipment Loans for Contractors? 

Lenders’ terms vary, so it is always worth shopping around for the best deal for you when looking for any loan, including heavy equipment loans. Here are two worth we recommend:

Funding Circle – Funding Circle offers a process that is faster than for traditional bank or SBD loans. They work with a variety of lenders and investors, so you only need one application to cover a lot of ground. Their APRs start from as low as 10.1%, with origination fees beginning at 0.99%, and there is no prepayment penalty.

On the other hand, you do need a minimum credit score of 620 and to have been in business for two years. Also, with average funding times of around 10 days, you may need to look elsewhere when you need money in a hurry.

Currency Capital – This provider has a wide range of loan amounts available, from $5,000 – $2 million with APRs ranging from 6.0% to 24%. They state that they can fund in less than 24 hours for the right borrower. Currency Capital is perfect for businesses looking for heavy equipment financing with wide-ranging amounts, rates and repayment terms.

What Are the Requirements for General Contractor Loans?

Several factors go into your eligibility for General Contractor loans. For the best chance of approval, you should…

• Make sure your credit score is high – Make sure you pay your bills on time and don’t max out your credit. The longer you have loans and credit, the higher your score and if your credit is a mix of mortgages, credit cards and loans, so much the better. Applying several times for credit in a short time will drag down your credit rating.
• Understand what your lender requires – Read carefully what your lender needs for you to qualify for a loan and make certain you meet those criteria before filling in any applications.

For example, if you want to apply for an SBA loan, you need to have been in business for 2 years, you need to know exactly what loan is for, and exactly how much money you need. You need to be comprehensively insured, have no missed mortgage or student loan payments and, of course, have a detailed business plan.

• Assemble all the documents you will need – Check with your selected lender exactly what they want and make sure you have them to hand before you start your application. These may include tax returns for you and the business, licenses, accounts, statements, leases and details of any other debts you are carrying.
• Have a rigorous business plan – This needs to be realistic and accurate: where you are now, where you want to go and how you are going to get there – in as much detail as possible.
• Collateral – You may not need collateral; many small business loans do not require it, but if yours does, you may need additional information.

General Contractor Lines of Credit 

Lines of credit can be the right answer to your cash flow needs. Two lenders we recommend are:

OnDeck – For a business line of credit, OnDeck looks beyond the owner’s personal credit score and ability to provide collateral and include the business as a whole. You need a personal credit rating of 600+, to have been trading for over a year, and annual revenue of $100,000 per year. They can provide a line of credit up to $100,000 with weekly payments. They sometimes charge a small monthly administrative fee. The money is usually available quickly – 1-3 days.

BlueVine – BlueVine boasts an approval time of as little as five minutes, provides you with an online dashboard to manage the line of credit, monthly or weekly repayments and a rolling system so that your credit is automatically restored.Once more your required credit score is 600+, you need to have been in business for over six months and have a monthly revenue of $10,000+.

Invoice Factoring for Contractors 

Why Invoice Factoring May Work for Your General Contracting Business

With payments in construction often delayed, the ability to get the cash early can make a massive difference to your everyday financial management. Payrolls and overheads always need to be paid, you may need money for another bid or have a sudden need for a new piece of equipment.

For invoice factoring, we recommend BlueVine. BlueVine can provide factoring lines of up to $5 million, with rates as low as 0.25% per week and approval in 24 hours. They will provide you with 85% – 90% of any invoice you decide to factor and the remainder, less their fee, once the invoice is paid.

There are many options for funding your construction company, and finding the correct one is important. Make sure you understand what you are being offered and how much it is going to cost. As with all borrowing, it is not free, so consider all aspects before committing yourself. Don’t forget to compare loans before you move forward with your application, and we’re here to help you do just that.