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Smarter Finance USA Blog

Contractor Loans: 7 Ways to Finance Your Construction Business

Posted by Rob Misheloff

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How to get contractor loans

We help a lot of contractors buy equipment....

 A lot of the time, the folks we are helping are purchasing equipment they'll need for a large contract.

Have you been in this situation?

If so, you know that you'll have a lot of costs before you get paid at each stage.

Hopefully you get paid right on time...

... but we both know that doesn't always happen, right?....

Hard to fund a contruction business if you're not being paid

 

Here's the deal:

To run your business properly, you might have to get your hands on some cold hard cash sometimes.

Special note: You may not want to read all of this. If you just need a quick quote, click here to get started on a loan for your contracting business

There's several ways to do this.

Depending on your situation, some options might make sense....

... but others will be pretty rotten.

Let's take a look at several ways to finance your contracting business.

1. Bank and SBA Loans for Contractors

very difficult for contractors to get sba loans

How patient are you?

Its sorta funny...

You look around on the internet and the "advice" websites, and see some 24 year old in a tie squawking about how to prep your statements to waltz into the bank...

Makes you wonder if that person has actually ever sat down with a real small business owner, right?

 

Banks hate financing contractors

It would be more funny if it wasn't such a total waste of your time.

The truth is, you can spend up to 25 hours just filling out the paperwork  to get a small business loan from the bank or the SBA.

After all those hours down the toilet, you'll often have to wait weeks just to get denied financing.

This is especially true for construction and contracting trades.

Banks hate lending to you:

When your business is good, things are really good.

But then they're not.... they're horrible.

With that being said, if you've got stellar credit, good cash flow, and time to cool your heels ... rates will be low. Find out your rate here

If you can probably get bank financing, you should probably go to your bank.

For mere mortals, though....

Here are some other ways to score cash:  

2. Equipment Leasing & Financing for Contractors

it's easier for contractors to finance equipment

A lot of the time, we hear from contractors who have just scored a big job.

They'll need money for payroll, materials, and equipment too.

These contractor loans should really be set up as two different transactions.

Here's why:

Let's say you borrow money for payroll, and you don't pay it back.

The lender is hosed - that money is gone.

They'll sell the loan to a collection agency for less than ten cents on the dollar.

Now, imagine you need a loan for heavy equipment.

If you don't make payments on your equipment, they'll take back the equipment. Usually equipment can be auctioned for about half of what it's worth.

That means it is way safer (to the lender) for you to finance equipment than for anything else.

Usually, rates will be lower for equipment than other types of loans, and much easier to qualify for.

We can help you with both transactions...

3. Using Equipment To Finance a Construction Project

you can use your equipment to finance construction projects

We often talk to customers about contractor or construction company loans.

After asking a few questions, we may find out that you own trucks or machinery.

Remember we just talked about how it's cheaper to borrow money for equipment than for other reasons?

The same thing works backwards.

If you own some equipment free and clear, you can say to a lender:

"If I don't pay, you can take my stuff."

repo man

In most cases, you will have little problem qualifying to borrow money against equipment.

Click here to borrow against value in equipment you own

The process will be fast, and payments will usually be less than if you got an unsecured loan.  Often, the structure is set up to save you a bundle on your taxes.

Be careful with this one though - there is one key negative.

You've probably already guessed it...

Yep.

If you get into a little hot water and default on the loan, you lose whatever collateral you have pledged.

In many cases, though, our customers find this to be a solid way to obtain financing.

4. Using Real Estate to Get a Construction Business Loan

real estate can help with a construction business loan

Are we still talking about securing loans with your assets?

Yes, but this one will be quick.

If you own equity in some land, buildings, or just your house...

...you can use that equity as collateral in much the same way as for equipment.

(Be super careful with that whole "putting up the house thing" though....)

The same rules apply as we just talked about... way easy.

The process takes a tiny bit longer than if you just used a dump truck or something to secure the loan, but it's still just a week or two.

Note: The rates on both types of asset-back loans we just spoke of can be very reasonable or somewhat expensive, depending on your credit score....

5. Contractor Financing With Daily Withdrawal Loans

 

You've seen the ads, right? The ones offering fast easy money for businesses?

We Call These Loans Garbage....

Let's say you need to borrow $50k. You might end up having to pay back $65,000 over 6 months.

These loans are quoted to make the payments sound small.

"Just $520 per day, Monday through Friday."

How much is that in a month?

Almost $11,000.

Oh, and the rates...

You'll usually be told there isn't an interest rate...

...but the rates on $65k paid back against $50k over six months...

big time interest rates

Yes.

One hundred and fourteen percent.

Now, we can and do sometimes offer these loans.

However, we refer to them as the "nuclear option."

nuclear option for capital for contractors

We will try every other option - and make sure you absolutely need the money - before suggesting you take on a very expensive loan.

If these are the only loans you can qualify for, we'll work hard to find you the least disgusting option available. Find out what options you have available

6. Lower Rate & Longer Term Loans for Contractors

term loans are often better for contractors

When there is a chance you'll qualify, often we'll suggest a lower interest rate term business loan to contractors.

These loans are much more reasonable than daily-payment models.

Here's what you can expect:

  • Terms from 1-5 years
  • Interest rates ranging from 6% to 32%
  • No prepayment penalties

Typically, these loans are a little bit higher than going to your bank, but unlike at the bank, some people may actually get a loan.

What would you need to have a shot?

  • $250k + in annual sales
  • Decent credit (typically 625 or above)
  • No major negatives (i.e. bankruptcy, tax liens)
  • Profitability - on paper
  • 12+ months time in business

These loans can take a week or two to put together, but it rarely takes more than a day or two to get you qualified so that you'll know.

7. More Expensive Contractor Loans for Bad Credit


There is one problem with the cheaper loans we just mentioned.

Remember 2008?

Yeah, a lot of the folks we talk to can't qualify for the cheaper loans because their credit reports still reflect some bad times.

There are still some options we can try before getting you stuck in a daily payment loan, though.

We do help some people get into longer term monthly payment loans.

Here's the downside:

These loans aren't cheap.

Rates are typically lower than those monthly payment loans, but they do range from 27% on up...

 and up...

...depending on how bad your credit is.

It's not all bad, though.

The monthly payment will usually range from 1/3 to 1/2 of what would be coming out with one of those cash advance schemes.

(So, you can, like, breath and stuff....)

Also, rates are high, but you can pay the loan off early and save interest and finance charges.

These loans are never our first choice.

However, if it's a choice between a kinda yucky high interest rate loan and a hideous cash advance, we'll suggest "kinda yucky" for you every time.

Conclusion:

We just went over a lot of ways in which you can get contractor loans.

There will be a quiz right after...

(Just kidding...)

The truth is:

What's your best choice to secure contractor financing? 

Connect with somebody that has access to multiple options and will work hard to find the best fit for you.

Someone with one product to offer can only try to ram what they sell down your throat.

That's no good, right?

Should you choose to work with Smarter Finance USA, we offer every single option we spoke of in this post.

(Other than bank or SBA loans....)

We'll help you figure out your best choices - even if that means not working with us.

Sound fair?

To get started, simply click in the picture below or call us at (800) 786-5696.

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Topics: Alternative Loans

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