Business Expansion

What Are the Most Flexible Business Loans for Construction Contractors?

Last updated on March 10, 2020

Jacques Famy Jr

Construction contractors face unique challenges when operating their businesses. In a lot of cases, construction contractors need the working capital to purchase supplies, equipment, and pay a labor force to sustain handle multiple jobs that they are working on while waiting to get paid on those jobs.

Finding flexible working capital business loans are essential to balance out cash flow when trying to manage outgoing accounts payables and incoming accounts receivables from jobs. Without flexible business financing, any discrepancies or delays in accounts receivables can create a domino effect on all the jobs that the construction contractor is working on. When this happens, tough decisions have to be made in relation to taking on new work, delaying current work, and in some cases have to lay off workers.

To prevent these working capital issues there are a variety of flexible business loan products that can provide the stability needed to both balance current jobs in the workflow as well as create an ability to manage more work within the workflow and grow the construction business.

The 5 Best Small Business Flexible Construction Loans to Manage Cash Flow

Business Line of Credit

A business line of credit operates more like a credit card in that it is a revolving open line of credit that allows you to draw money out as needed and you only pay principal and interest on your outstanding balance up to a preset credit limit.

Business lines of credit are offered by both banks and online business lenders. However, banks have tighter qualifications than online lenders. Online lenders have better approval rates with less stringent qualifications, but charge higher rates than banks because they take on greater risks.

Terms for a Business Line of Credit: 

  • Credit limits up to $250,000
  • Open revolving line of credit with no fixed term
  • Rates starting at from 4.99% with banks
  • Monthly, bi-monthly or weekly payments

Qualifications for a Business Line of Credit:

  • Minimum 6 months in business
  • Credit scores above 550 (better the credit the better the rates)
  • Annual revenue above $180,000

Requirements for a Business Line of Credit: 

  • A simple one-page application
  • Business bank statements for review. (We focus on gross sales, not primarily profit/loss)
  • Financial statements (if applicable)
  • Credit (all credit types are considered, from excellent to poor)

Time Frame From Application to Funding for a Business Line of Credit:

  • Same day to 24 to 48 hours

Short Term Business Loans

The term “short term business loan” refers to a lump sum of money provided to a business that is repaid within a fixed length and/or period of time. This is usually a time frame of 6 to 12 months but can be as long as 18 months or more. Such purposes may include working capital, equipment purchases, business expansion or renovation, and an abundance of other business needs.

Short–term fixed term loans are a fixed loan amount, with a fixed term, and a fixed payment either monthly, bi-monthly, weekly or in some case daily (Monday-Friday). The charges and/or costs can either have a fixed cost factor rate or they can be based on an interest rate with principal and interest. Credit qualifications will determine rate and fees and can vary widely.

Terms for a Short Term Business Loan:

  • Loans up to $50,000
  • Fixed terms typically 6 to 12 months, but can go up to 18 months
  • Factor rates 1.18 to 1.45 or principal and interest rates 6.99% up to 28%
  • Monthly, bi-monthly, weekly or in some cases daily payments

Qualifications for a Short Term Business Loan:

  • Minimum 6 months in business
  • Credit scores above 550 (better the credit the better the rates)
  • Annual revenue above $180,000

Requirements for a Short Term Business Loan:

  • A simple one-page application
  • Business bank statements for review.
  • Financial statements (if applicable)
  • Credit (all credit types are considered, from excellent to poor)

Time Frame From Application to Funding for a Short Term Business Loan:

  • Same day to 24 to 48 hours

Invoice Financing

Invoice financing, also known as “invoice factoring” or “accounts receivable financing,” is a type of financing that allows business owners to get cash quickly from invoices that they would otherwise be waiting 30, 60, or 90 days to receive payment for.

This type of business loan lets you, as the owner, finance purchase orders or outstanding invoices. A business invoice finance company will advance a set amount of the unpaid invoice to the business owner and then collect directly from the client or customer for the unpaid portion.

Accounts receivable financing is a simple way for small business owners to free up future cash for the bills of today. Because there is less risk involved for the lender, the qualifications are easier, but there are still fees and restrictions.

How this type of financing works is based on a mix of processing fees and factoring fees. Here’s the math involved in a typical financing scenario:

Let’s say you have a $10,000 invoice with 45-day terms.

A financing company might immediately advance you 90% of that amount, or $9,000, and hold the rest, the $1,000, in reserve.

The next step happens when the invoice is paid. Say the customer pays the finance company three weeks later. After subtracting the 3% processing fee of $300, the financing company keeps its factoring fee of 1% per week, which in this example is 2% or $200, and then gives you the remaining balance from the $1,000 reserve.

Essentially, they charged you $500 out of the $10,000 invoice, you got the $9,000 upfront, and you only had to pay $500 for the convenience. This is a great method for getting cash when your business is strapped in the short term, but you anticipate better finances in the long run.

Qualifications for Invoice Financing:

  • Clients creditworthiness, not business owner credit
  • Account receivable of $50,000 on a revolving basis
  • A track record with the client that the business owner invoices for a period of 3 months or more
  • Invoices that are typically net 30, 45, 60, and up to 90 in certain circumstances

Requirements for Invoice Financing:

  • A simple one-page application
  • Accounts receivable ledger
  • Copy of invoices
  • Clients information of who the business owner invoices

Time Frame From Application to Funding for Invoice Financing:

  • 1 to 2 weeks

Business Credit Cards

Business credit cards, similar to that of personal credit cards, are open revolving lines of credit whereby a card is issued and can be used to both make payments as well as make purchases on-demand, 24 hours a day, 7 days a week. Business credit cards are the most popular and flexible form a credit a business owner has at his or her disposal. Business credit cards are an essential part of the business’s financial credit tool bag.

Terms for Business Cards:

  • Open revolving line of credit with no fixed term
  • Rates starting at from 0% up to 28.99%
  • Monthly payments

Qualifications for Business Cards:

  • Require good to excellent credit, usually a minimum of 675 FICO scores

Requirements for Business Cards:

  • A simple one-page application either online or over the phone
  • Business owner personal credit check

Time Frame From Application to Funding for Business Cards:

  • Same day to 24 hours

The Bottom Line for Construction Contractors in Search of Flexible
Business Loans

When choosing a flexible business loan product for working capital it still comes down to both the need and use of the money and the features and terms of the business loan product. As a business owner, you have to ask yourself what specifically am I going to use the money for? How quickly do you need the working capital?  You may want to have more than one option available to fit your needs. It’s not uncommon for a business owner to have a business line of credit or short term business loan, invoice financing, and a business credit card at the same time. These business loan products have different features and uses that can be specific, so you might want to have multiple options at your disposal in the time of need. You don’t want to wait until you need these products immediately to be shopping around because it can take time to secure the right business product for your situation.

Also, remember to compare business loan product offers from banks and/or online business marketplaces when making any decisions no matter what business loan product to choose. Compare, shop, and you will save!

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.