Construction Loans

Construction loans for companies of all shapes and sizes,  are a fact of life. However, in few areas is this more true than for construction companies.
Construction companies make their money on the margins of the costs of equipment, raw materials, and employees, so it is essential that any loan not eat up too much of that profit.
Additionally, many construction companies find that their biggest problem is not the lack of funds, but the lack of funds today.
Business loans for construction companies can help mitigate much of that problem.

Types of  Construcion Loans

Different circumstances can call for different loans for construction companies. While there are plenty of different options out there, ranging from credit cards to traditional bank loans, we will look at three major categories: bank loans, automated loans, and lines of credit.

Bank Loans

When many people think of loans, chances are that they think of bank loans. These are the types of loans that people use on everything from buying a car to financing a child’s education.
The application process is pretty straight-forward.
The applicant goes to the bank, ideally one where their company has some history of business, and submits an application to get a loan.
While some of these can be returned same day, one major downside of bank loans is that they do often take a while to process. Additionally, not every bank understands the construction industry, so they may not understand the challenges that builders face.

What About Small Business Loans?

Banks are also sources of small business loans, a federally guaranteed way of borrowing money. On the surface of it, small business loans are a great idea; essentially, the federal government is co-signing on the loan, helping a business get access to a lower interest rate as well as a faster decision.
However, Uncle Sam does not work with just anyone. All of the requirements for a typical bank loan are more stringent for federally backed SBA loans.

Automated Loans

Automated loan companies, like GoKapital, help companies find capital quickly. Because they are focused on working with other businesses, these companies offer a number of advantages over traditional banks.
First of all, because they work only with companies, they understand the issues that small businesses face more acutely than a traditional bank.
This means that they are more likely to be forgiving of cash flow issues, for example, because they understand that it is not a lack of management, but instead a reality of a given industry.
Additionally, because many of them are automated, companies can expect a decision much more quickly than through other means.
Many of these companies offer funding the next day, making it ideal if a company needs money quickly in order to meet payroll, pay for an urgent and unexpected repair, or be able to bid on a project that would otherwise be out of its reach.

Lines of Credit

Finally, for companies that face more of an issue with cash flow, lines of credit can act as a great way to borrow just the money that is needed and pay it back quickly.
Typically, a line of credit is secured before it is needed, and can sit in another account. When needed, companies can transfer the funds out of the line of credit into their primary accounts.
The provider keeps track of the amount of the loan as well as the time until it is paid back, and bills interest accordingly.
Because of this flexibility, many companies find that lines of credit offer a great number of advantages. However, there are two major types of line of credit, unsecured and secured.
A secured line of credit requires some sort of collateral, typically land, a CD, or equipment, that if it remains unpaid the bank can repossess the collateral. Unsecured lines of credit do not have this requirement.

Construction Loans Requirements

No matter what type of loan is being considered, three different requirements are likely to matter. These are the time in business, cash flow, and credit score.
While there is some flexibility with each, having a good idea of where each stands for a given organization can go a long way in helping to inform what loan may be the best fit.

Time in Business

Not surprisingly, lenders do not want to do business with a company that is new to business.
There are simply too many variables. Instead, most lenders will want proof that a company has been in business for at least two years before they will consider lending it money.
However, large profits and the potential for growth may mitigate this with certain lenders.

Cash Flow

Likewise, few banks or other providers will want to loan money to a company that is unlikely to be able to pay it back. Therefore, being able to cover the loan payments with cash flow is a must.
Again, there is some room for consideration; a company looking to expand operations in order to definitely expand cash flow, or repair something that will increase its cash flow, may have an easier time.

Credit Score

Finally, just like in consumer banking, credit scores matter.
A secured line of credit may be available with a credit score of 550, while a Small Business Administration-backed loan will often require one in excess of 700. In any case, this can be one of the most important factors in determining if a bank or other lender will consider a given request for a loan.

Conclusion

No matter what the need for the loan, construction companies have a number of different options available to them when they are in need of financing.
However, each of these different options does often depend on the same factors, namely time in business, cash flow, and credit score.