How to Apply for Funding for a Construction Businesses

10
April 2019

The best kind of building you can do is building your business. And you’re going to need to access funding to do it. The construction business is seasonal even if you work in a warm climate, and you probably also see dips in your working capital funds due to outlay for labor and supplies before your customers settle their bills in full. Your options include applying for a traditional bank loan and accessing funding from an alternative lender.

How can I use funding to build my construction business?

The terms of the funding you secure from a bank may limit what you can do with the funds you borrow. With an alternative funder, you get more options. You could use the funds to:

• Take advantage of new opportunities

• Cover day-to-day expenses

• Lease or purchase equipment, machinery or vehicles

• Purchase tools and supplies

• Repair or replace machinery, vehicles, tools or supplies

• Finance large jobs

• Train new employees

• Offer new services

• Invest in technology to gain a competitive edge

• Market your construction business

Basically, the funds you receive from alternative funding sources can be used as you see fit to support your business’ growth.

Construction company bank loans

As many small business owners know, applying for a bank loan is a complicated undertaking that may not pay off in the end. Some banks even refuse to lend to businesses whose annual revenues fall below $2 million.

You can expect to spend at least 25 hours on paperwork for bank loans and you will likely need to apply at several banks during the application process. If you have been in business for several years you many qualify for an SBA loan. These loans are issued by banks, but the Small Business Administration guarantees to pay back the majority of the loan amount if you default. This reduces the risk for banks, but the SBA takes on the risk. While there is no hard requirement for you to have a 700+ credit limit for an SBA 7(a) loan (the type of loan most construction businesses prefer) you are unlikely to be approved without at least a score of 650 - and 700 is preferred. You’ll also want to have an annual revenue of at least $100,000 and a solid track record of building your business to apply for an SBA 7(a) loan.

Even then, you may not be approved by a bank – their minimum eligibility requirements differ from bank to bank. And bear in mind you’ll need to fill out a lot of forms, present an extensive business plan, tax records and other supporting documentation.

Even if your loan is approved, you’ll likely wait weeks or, in some cases, a month or more for the funds to actually be available for use. So, consider alternative funding sources if you have neither the time, patience or credit record that will enable you to secure a traditional business loan for your construction business.

Alternative Funding for Construction Businesses

Alternative lenders work with businesses that have revenues as low as $5000 a month, and funds are typically available within 72 hours. Business owners don’t need to have perfect credit scores to be approved. And the typical application process takes minutes, not months.

Other advantages of alternative small business funding also include more flexibility, with options – such as equipment loans and invoice factoring - designed to meet the needs of smaller businesses. That said, alternative loans are risker for lenders, which means fees and interest rates are typically higher for borrowers when compared to a traditional bank loan.

What kinds of loan are available through alternative funding sources?

One thing to know is that alternative funders may not offer “loans.” Instead they may offer advances on future revues, unpaid invoices and collateral. This flexibility enables people with less than perfect credit to more easily access business funding. The types of funding available through alternative sources may include:

Equipment loans:

You may be able to get up to 100% of the value of your business equipment, such as vehicles or machinery. The equipment/machinery serves as the collateral for the funding, making this an option that may met the needs of business owners who have substantial equipment assets but will low or no credit ratings.

Invoice Financing/Factoring:

it’s not uncommon for small businesses to wait 30-90 days for invoices to be paid. When business is slow, those unpaid invoices can cause significant cash flow problems. An invoice financing loan provides expedited access to funds. You get an advance on a portion of the funds due. The funder then collects the full invoice amount, plus fees and interest. This is a great option if you have reliable customers who are just a little slow on paying their invoices.

Merchant Cash Advances (MCA):

these are paid back via a percentage of the merchant’s daily or weekly sales. For small businesses that see daily or weekly transactions, such as restaurants or shops, this can provide an easy way to access funds quickly. If your construction business has steady weekly revenues, that are paid into a business bank account, this is an option you may want to discuss with a funding expert. Lenders look at a business’ receipts to determine whether to approve the advance, so small business owners with low credit ratings are often able to get approved for an MCA.

How to Apply

Requirements vary according to the type of loan, and the amount. One easy way to get started is by getting pre-approved by One Park Financial, which then gives you access to a funding expert who can discuss your business needs and options to determine what funding types best meet your needs.

One Park Financial works to help owners of small and mid-sized businesses access the funding that meets their needs. Established in 2010 and founded by entrepreneurs, One Park Financial understands the challenges associated with small business loans and their need for working capital. Visit oneparkfinancial.com or call 855.218.8819 and connect with a funding expert to discover the options that make sense for you and your business.