What You Need to Know About Construction Business Loans
While construction business loans may be a valuable asset for many construction-related businesses, there may also be drawbacks to be aware of.

Pros
- Help with cash flow
- Pay for expensive equipment
- May offer predictable monthly payments

Cons
- May require down payment
- May require high credit scores
- There may be other fees
Construction Business Loans Pros
Having access to working capital could be what your construction company needs to grow rapidly.
Helps with Cash Flow
The construction business is one that ebbs and flows in terms of cash flow. You may wait a while to get paid for a construction project, but you have expenses in the meantime. A construction business loan can provide the working capital you need.
Great Way to Afford Expensive Equipment
Construction companies need costly equipment like backhoes and tractors, and most don’t have the cash to pay for those outright. The right financing can enable you to make these purchases while keeping cash flowing.
Predictable Monthly Payments
If you get a loan that offers a fixed monthly loan payment on your construction financing, you can better budget for your business expenses.
Construction Business Loans Cons
While there are plenty of benefits to commercial construction financing, there are also drawbacks to be aware of.
May Require Down Payment
A construction business loan may be considered a high-risk loan to some lenders, and they may require you to make a down payment of 10 to 30% of the project cost.
May Require High Credit Scores
Because of the level of risk, lenders may want you to have high personal credit scores and/or business credit scores to assure them of the likelihood you’ll pay back the financing.
There May Be Other Fees
In addition to the interest rate you are given for your financing, you may have to pay other fees for your construction business loan, including processing or documentation fees, as well as project review fees or fund control fees.
What is a Construction Business Loan?
A construction business loan provides you with capital to cover operating expenses, payroll, construction equipment, or other expenses your construction company may have.
Types of Construction Loans
There are a few different types of construction lines of credit including:
- New Construction Loan: A new construction loan is a short-term financing option that can allow you to borrow capital to buy a lot of land, cash out on a lot, or build a new home to sell.
- Construction-to-Permanent Loan: With a construction-to-permanent loan, you can receive the business funding you need to cover the construction costs of a home. Once the home has been built, the loan converts into a mortgage.
- Renovation Construction Loan: If you’re buying a fixer-upper to renovate and sell, you may choose a renovation construction term loan. This type of loan wraps up the cost of any renovations you plan to make with a mortgage.
How Does a Construction Business Loan Work?
Spend some time assessing your different options for a construction loan before beginning the application process. Assuming you qualify (more on that next), the lender will approve you for a loan at a specific APR. You’ll be told your monthly payment and length of time to repay the loan. Once you’ve signed your loan documents, the funds will be deposited into your business bank account.
How to Qualify for a Construction Business Loan
Lenders each have their own secret formula for what they consider to qualify you for a loan, but generally, a borrower should have a credit score in the mid-to-high 600s, low debt-to-income ratio, and details about the project you want to borrow money for.
Best Uses for a Construction Business Loan
Here are some scenarios where a construction loan is ideal.
You’re embarking on a new project that will cost more than you can pay outright. You need a loan to cover the extra labor and materials, and you know you can quickly repay the loan once the project is complete.
Another scenario is when you have an unpaid invoice and have expenses you need covered now. A loan can give you the capital you need to tide you over until the invoice is paid.
Your backhoe has taken its last breath, but you desperately need one for a current project. Borrowing money to replace it keeps your project moving forward.
Alternatives to Construction Business Loans
There are several types of small business loans to consider to get you the funding your construction business needs. Each will have its own requirements, and, depending on your credit situation, some might be a better fit than others.
SBA Loans
Considered the gold star of financing, SBA loans offer low rates and long loan repayment terms. Banks and credit unions may be SBA lenders, though the loans are backed by the Small Business Administration.
Bank Loans
Bank loans are another funding option that can offer great rates. The approval process and paperwork for a working capital loan can be time-consuming and can take a while, so plan ahead.
Line of Credit
A line of credit allows you to take out the amount of money you need when you need it, up to a set amount.
Invoice Factoring
If your construction business invoices other businesses and needs to get paid more quickly, invoice factoring may help. You’ll get a percentage of the invoice up front, and the rest (minus fees) when the invoice is paid.
Alternative Lender
For borrowers with bad credit or who don’t otherwise qualify for financing from a traditional lender, there are alternative sources of funding that may have less stringent requirements for construction business financing.
Through an alternative lender, you may qualify for a short-term loan that gets you the capital you need immediately, though be aware that repayment will be short, typically three months to three years.
You can also find options for both secured and unsecured business loans, so even if you don’t have collateral to put down, you can find the financing you seek.
Equipment Loan
If you need capital to buy or lease a piece of construction equipment, there are specific equipment loans for that purpose. The equipment you’re buying is the collateral for the loan, which secures the construction equipment financing enough to potentially get you a low interest rate.
Business Credit Card
And while they won’t let you buy a piece of property, business credit cards are also a funding source to consider. Using a card with a 0% introductory APR and/or rewards could come in handy when you need to make essential purchases with a little more time to pay for them.
Nav’s Verdict: Construction Business Loans
As a construction business owner, you know the construction industry requires a large financial outlay. Construction business loans can keep you competitive and can keep cash flowing until you get paid for that next project.