Running a construction company is a pricey proposition that sometimes requires a construction business loan. You need to cover your direct costs—materials, on-site facilities, temporary machine parts, wages for your crew. And you also need to compensate for overhead costs, seasonal cash-flow dips, slow periods between payments, and any manner of unforeseen emergencies.
Even if you’re not thinking about it now, sooner or later, you’ll probably need a construction business loan.
But if you’ve looked into your small business loan options, you know how many types of financing options lenders offer: You’ve got your bank loans, your short-term loans, your medium-term loans, your invoice financing options…
It’s understandable, then, if you’re unsure about which of these loan types actually makes sense for a construction company. And you might need different types of financing at different times, depending on your company’s evolving needs.
To alleviate as much of that unease as possible, we’ve picked out four of the best construction business loans on the market. These four loans suit four different stages of a construction company’s growth, so you can pick and choose according to your particular company’s age, size, and ability to meet these loans’ eligibility requirements.
We’ll also show you some ballpark figures that you’ll need to meet to qualify for each type of loan. Keep in mind, though, that there’s really no magic formula you can follow that’ll guarantee your acceptance for any loan—it all depends on your overall financial profile and the lender you’re working with. But these numbers should give you a barometer of where your business should to be to secure the financing your construction company needs to grow.
The 4 Best Construction Business Loans
Here are our picks for the four best small business loans for construction companies, according to the stages of their businesses:
1. Best Construction Loan for New Businesses: Equipment Financing
No matter which types of projects your construction company hopes to undertake, it’s pretty much a given that you’ll need equipment—and lots of it—to carry out those jobs. But even a single piece of equipment is seriously expensive, so newer construction companies just might not have the funds available to finance all the tools they need to get themselves off the ground.
Your solution is equipment financing. With an equipment loan, you come to a lender with a quote, and if you’re approved, they front you 80 to 100% of the cash you need to purchase equipment. Like a traditional term loan, you’ll repay your lender in regular installments, usually on a monthly basis. The life of your loan depends on how long the lender anticipates that the equipment you’re borrowing against is useful and valuable.
What really sets this type of loan apart from many of the other business loans you might know about, however, is that your lender uses the equipment itself as collateral. That means if you fail to repay your loan, the lender will seize that equipment to satisfy their debt. That baked-in collateral mitigates the lender’s risk. They’re guaranteed to be repaid if you default, whether that’s through your agreed-upon repayment, or by repossessing the equipment proper.
Since this is a relatively low-risk scenario, lenders aren’t so concerned with working strictly with low-risk businesses—i.e., established businesses with years’ worth of evidence of profitability and good credit scores. So, it’s a little easier for newer businesses to qualify for equipment loans.
What a strong candidate for equipment financing looks like:
- Credit score: 600+
- Time in business: 11+ months
- Average revenue: $100,000
Even if your business can’t meet these approximate minimum requirements, you might still have a shot at securing equipment financing. For the most part, lenders are just as concerned with the value of the equipment itself as they are with your personal creditworthiness. But, as always, borrowers with the strongest applications will be eligible for the lowest interest rates on their loans.
2. The Best Construction Loan for Growing Businesses: Business Line of Credit
A business line of credit is a bit like a business credit card, minus the plastic (and a way to earn enough miles to go to Italy). Essentially, your lender gives you access to a renewable pool of capital, an amount they determine based on your business’s financial profile and personal creditworthiness.
You can choose how much of those funds you want to borrow from, and access the money whenever you need or want them most. You’ll only pay interest on the money you use. Plus, interest rates on business lines of credit tend to be lower than business credit cards—unless you make late payments, in which case that interest can spike.
Business lines of credit are ideal financing solutions for most small businesses, but construction companies in particular can benefit from their flexibility. You can rely on this revolving resource to replace defunct or broken equipment, hire and train a wave of employees, and have a cash cushion during seasonal dips, slow periods, or if a customer is dragging their feet on paying you back. Business lines of credit can also offer backup if you need to jump on unexpected opportunities to grow your business.
Even if you need to apply for a term loan to finance big, one-time purchases down the line, you can still keep a business line of credit in your back pocket to fill in those intermittent cash-flow gaps.
Secured vs. Unsecured Business Lines of Credit
There’s one more difference you should know about when you’re looking into taking on a business line of credit: secured vs. unsecured lines of credit. Both lines of credit work the same way: They’re flexible sources of capital that you can draw down from whenever you want, and you’ll only pay interest on the amount you tap into.
The difference, though, is that secured business lines of credit are backed by a collateral asset. Lots of assets can function as collateral for a small business loan, including invoices, cash, inventory, physical property, equipment, personal guarantees, or blanket liens.
If a borrower defaults on their loan, the lender has the right to seize whatever asset was defined in the terms of the loan to recoup that debt. That safety net mitigates a lot of the risk to the lender, so it may be easier to qualify for a secured line of credit than its unsecured counterpart. Lenders may also offer you better rates and terms on a secured business line of credit.
But if you don’t want to risk your assets, you may want to consider applying for an unsecured business line of credit instead. As we mentioned earlier, unsecured business lines of credit work in exactly the same way as secured business lines of credit do.
However, since the lender doesn’t have collateral to fall back on in case the borrower defaults, eligibility requirements for unsecured business lines of credit (or any unsecured loans) may be a little tougher. Lenders will only feel comfortable extending unsecured loans to the borrowers whom they deem low-risk. That means profitable businesses, owned by individuals with good credit scores.
What a strong candidate for a business line of credit looks like:
- Credit score: 550+
- Annual revenue: 100,000+
- Time in business: 2+ years
Again, these numbers vary depending on which lender you work with—and which type of lender, as both banks and certain alternative lenders offer business lines of credit. Typically, bank business loans extend larger amounts than alternative lenders, but almost universally have tougher qualifications.
Depending on the financial institution you work with, and your overall financial profile, you can expect business line of credit amounts to be as small as $5,000, or up to over $1 million, for the most eligible borrowers working with bigger banks.
3. The Best Construction Loan for Established Businesses: SBA Loan
If you’ve been in business for a while, then you’ve probably heard of an SBA loan. And you might be eligible for one, too.
Although they’re a product of the US government, SBA loans are issued by banks, but the Small Business Administration guarantees the majority of the loan amount if a borrower defaults—up to 85%. That safety net reduces the risk to the lender, so banks are actually incentivized to extend SBA loans, and at extremely favorable terms to borrowers. Your bank’s SBA loans carry low interest rates, long repayment periods, large loan amounts, and low down payments.
The SBA offers a few loan programs, all of which differ according to eligible use-cases and amounts funded. But the SBA 7(a) loan is definitely the most popular and flexible type of these government-backed loans, because you can use them for the widest range of business purposes.
In particular, construction companies may want to apply for SBA 7(a) loans for a source of working capital, to purchase equipment, or to consolidate debt, as long as those uses align with what the SBA deems an eligible use of proceeds.
Even though banks are guaranteed to be repaid one way or another, SBA loans are in high demand, so banks still have the privilege of picking and choosing which borrowers they want to work with. As always, that means low-risk borrowers with great credit scores and several years’ worth of profitability.
So, we’d really only recommend that established businesses apply for SBA loans, because they’ll have a better shot at meeting all the qualifications on the SBA loan application that these lenders want to see. But if you do qualify for an SBA loan, you aren’t likely to find more generous loan amount or better terms anywhere else.
What a strong candidate for an SBA loan looks like:
- Credit score: 650+, but 700+ is ideal
- Annual revenue: $100,000+
- Time in business: 2+ years
The SBA’s non-negotiables:
- US-based business
- For-profit entity
- Past record of investment into building your business—both time and money
Minimum eligibility requirements differ according to the lender you work with, and the SBA technically doesn’t have a hard credit score requirement for an SBA 7(a) loan. But, with SBA and bank loans in particular, you’ll always have a better chance at securing one of these loans if you far exceed the minimum.
Also keep in mind that you’ll need to provide a good amount of paperwork on your SBA loan application. But the process is worth it for one of the best loans in the biz.
4. The Best Construction Loan for All Businesses: Business Credit Cards
We recommend that every business, no matter their size, age, or industry, responsibly uses a business credit card for their everyday purchases. But, in large part, “responsibly” using a business credit card means paying your balance in full and on time every month.
That can get a little tricky for construction companies, which may need to carry a balance from month to month to pay down extra-large expenses. But carrying a balance on a credit card means having to pay a lot of interest, which can cause a serious dent in your cash flow. And paying credit card bills too late may very well lower your credit score.
You have several different options for business credit cards as a construction or building company, and your strategy for picking one will change depending on your exact needs. Here are a three very different ways to think about using business credit cards as construction business loans:
Use a 0% Introductory APR Business Credit Card as a Short, Interest-Free Loan
If you’re clever about it, you can use a business credit card with a long 0% intro APR period like an interest-free loan. The American Express Blue Business Plus is an excellent example of this approach.
This card comes with the longest 0% introductory APR period we’ve ever seen at 15 months. That’s more than a year during which you’ll be able to carry a balance without any additional interest (after that, a variable APR will kick in, based on your creditworthiness and the market Prime Rate). But that’ll allow you to put a large purchase onto your card and plan out over the next year-plus a plan to pay it back—which is very generous.
Just, of course, make certain you do—because you don’t want to end up paying credit card interest fees. But if you’re able to make a setup like this work for you, you can not only take advantage of the great introductory offer, but also build credit to work toward a great business loan, too. All with no annual card fee.
Try a Charge Card with a Flexible Payment Option
If payment flexibility is appealing to you, you know you don’t need a full year to pay off a purchase, and you want the ability to keep the flexibility going, here’s an idea. Consider the American Express Business Plum Card, which will give you all of that—plus rewards and discounts.
The Amex Plum is actually a charge card, not a credit card. That means you’ll be able to spend big on the card with no credit limit. You also have a full 60-day grace period from your due date to pay off your spending—and you’ll get a 1.5% discount on every dollar you spend and pay off early.
There are costly late fees on this card as it’s a charge card, so if you don’t think you’ll be able to pay off your balance, this won’t be a great tool for your business. But if you think it’s right for you, Amex waives the $250 annual fee for the first year to help you try it out.
Spend Only What You Have with a Prepaid Business Debit Card
If you’re not ready to fully make a jump into a business credit card, try the Bento for Business card. The Bento is actually a prepaid business debit card. Rather than receiving an assigned credit line from a card issuer—as is the case with a true credit card—you’ll frontload the Bento with your own cash after securely hooking it up to your business bank account.
That way, you’ll never be carrying a monthly balance, nor need to worry about paying on time. Using the Bento won’t affect your personal credit score at all, either positively or negatively—but that also means there’s no credit check required to apply for a Bento card.
What Bento does do, though, is allow you all the convenience and control of a business credit card, and then some. First, your Bento account lets you create as many employee cards as you need, which you’ll pay for according to a sliding scale, so you can you easily delegate cards to your team. Plus, you can use Bento’s card-management tools, including a mobile app and a dashboard, to oversee, limit, and adjust the budgets on all of those cards.
Bento will hook directly into whatever business accounting software you’re using, too, so you can see your spending patterns—and when time comes for a real business credit card, you’ll know exactly what you spend on, and how much.
A Quick Rundown of the Best Small Business Loans for Your Construction Business
In case you don’t have the time to read over each type of construction business loan in detail (understandable!), just take a peek at this overview of the best small business loans for construction companies:
1. Equipment financing:
- Best for new construction companies
- Your lender fronts you up to 100% of the cash you need to purchase equipment, and the equipment itself functions as collateral in case you default on your loan
- Easier for new businesses to qualify for than unsecured loans
2. Business line of credit:
- Great options for growing construction businesses
- Your lender gives you access to a specific amount of capital, which you can draw down from at whatever time, and in whatever amount, you want or need
- You only pay interest on the funds you use
- May be secured or unsecured
3. SBA 7(a) loans:
- Best for established construction companies
- Government-backed bank loans with great terms
- You can only use SBA 7(a) loans if they suit the SBA’s eligible use-cases, like working capital, purchasing equipment, or debt consolidation
- Tougher to qualify for than other types of small business loans
4. Business credit cards:
- Best for construction companies at any stage, especially for owners who need to oversee employee spending
- Different cards serve different purposes
- Can act as short-term, interest-free funding or flexible repayment
- Can help your track your spending and build your credit toward business loans
Sure, it can be overwhelming to sort through the myriad small business financing options on the market. And it’s certainly true that not every form of financing makes sense for your construction business.
But, on the flip side, you’re pretty much guaranteed to find some form of financing that suits your construction company and its needs—even as your company and needs grow and evolve.