Although it may seem daunting to secure a loan for business construction, it is not impossible. It can be easier and more efficient to know the requirements for securing a loan.

Lenders will consider everything from your credit score to your affordability when deciding whether to approve you for financing. Continue reading to learn about the different stages of getting a loan for a business.

What is a Construction Loan?

A commercial loan for construction is a loan that’s specifically designed to assist contractors and building companies in financing the costs of various real estate projects.

Construction loans allow funds to be disbursed to pay for expenses such as labor costs, permits fees and construction materials. A commercial construction loan is also used by many businesses to finance equipment, balance cash flows, or invest in new revenue-generating opportunities.

What is the Construction Loan Process?

There are many types of construction loans and building loans. They can be either short-term or longer-term. While short-term loans can be used to develop real estate projects or mitigate temporary cash flow disruptions and are useful for other purposes such as funding the cost for materials to start new projects, they also have a long-term option. Repayments are usually due in one to three years.

You can use long-term loans to finance whole properties, land or equipment. These loans can be for 5 to 25 years. A down payment of 20% is usually required for long-term loans. Sometimes, additional collateral or personal guarantees may be required by the lender to guarantee the loan.

Construction loans can be used for short-term and long-term financing. This includes financing ongoing projects, upgrading or remodeling existing buildings, buying equipment and even purchasing vacant land for development.

Contractors can use loans to finance their operations, in addition to construction costs. Businesses can borrow money to finance temporary cash flow dips. They can also use the funds to purchase new technology, hire staff, or jumpstart marketing campaigns.

How to Qualify For a Business Construction Loan

To get a loan for a business project, the borrower must show that they have the ability to repay the loan and that they can afford the required financial resources. When assessing your qualifications, a lender will usually consider several factors.

Credit History

A business construction loan approval is dependent on your credit score. Lenders will examine your credit history in order to assess your creditworthiness. They also want to know if you can repay the loan on time.

Higher credit scores will increase your approval chances and can help you qualify to receive lower interest rates. This can lead to significant savings over the life of your loan. Your credit score should be at least 650. This will increase your chances of getting a loan for your business.

Even if your credit score is not favorable, you might still be eligible for funding solutions. Online lenders are your best option in this situation because they consider a wider range of factors when assessing a request.

Down payment

A strong credit score is not enough. Applicants for business construction loans may be required to provide collateral or a downpayment to secure the loan. The lender will require collateral in the form or property of assets. This provides some protection in case the borrower defaults.

If you are looking to buy real estate, land or equipment, down payments and collateral will almost always be required. Collateral requirements will often be met by the assets that you are looking to finance. You can now invest in your business while not sacrificing your personal finances.

Financial Documents

You must be able show that your business has the financial resources or profitability to repay the loan. Lenders might ask you to show evidence of your company’s financial resources, such cash reserves or liquid assets.

Most often, your financial records can be used to confirm your financial status. These documents include bank statements, tax returns, financial records of your business, cash flow projections, and any additional documents that the lender might request.

Project Cost Estimates

Lenders, especially banks, will need to evaluate the feasibility of a project if they are going to finance it. They will most likely want to see a detailed business plan outlining the project and its costs. Also, the estimated completion timeframe.

A lender might also request to see any permits or approvals that are required for the project. You might be asked to submit building plans, construction budgets and zoning permits. Contractor bids may also be required. Lenders will also need to know how much revenue your business is expected to generate after the project is complete.

History of Business

A bank will require at least two years of business history to approve a loan for business construction. This is because start-ups in the early stages are more likely to fail, while established businesses have greater experience in their field.

Banks might also require financial records going back at most 2 years. Sometimes, banks may ask for financial documents going back at least 2 years. You should have past success stories in construction or a portfolio of projects to assist you with this phase.

To get more flexibility in business history requirements, you can turn to online lenderspan type=”font-weight 400 ;”>. They are more open to working with young businesses and offer greater flexibility in terms of products and terms.

5 Steps to Obtain a Business Construction Loan

A business construction loan can help you plan for future projects and maintain your cash flow. These are the five steps you need to take in order to get a business loan.

Step 1 – Gather Your Documents

Gathering all necessary financial and legal documentation is the first step to securing a loan for business construction. These documents include your tax returns, bank statements and project estimates. This information will show your lender that your business is healthy and ready to expand.

Step 2 – Shop around and Compare Lenders

There are many lenders that offer construction loans. These include banks, credit unions and online lenders. Although bank loans have lower interest rates than other types of loans, they are more difficult to get.

Online lenders are more accessible and offer higher approval rates. Online lenders are also more flexible in terms of credit requirements, business history, or other details related to your business plan.

Online lenders and banks offer similar types of construction loans. These include term lines, lines-of credit and SBAH loans. To ensure that you get the best loan for your company, it is important to carefully compare loan terms, interest rates and fees.

Ask different lenders about their offerings. You should have several options to compare loan offers so that you can choose the best one for you. Make sure you research customer service records so that you can make informed decisions.

Working with a FinTech marketplace to lenders like National Business Capitalspan styling=”font-weight 400 ;”>. is a great way to do this. Instead of applying to each lender individually, you can get multiple offers on one application and then choose the one that suits your needs best.

Step 3 – Apply for Financing

Once you have settled on a lender it is time to start the application process. You will need to complete an application form. This includes key information like your company name, address, phone number, details about loan purpose, loan amount, etc. Before signing any paperwork, make sure you have completed every section accurately.

This is where you’ll be submitting financial statements for your business. You may be required to go to a branch in order to sign off your application and submit the documents. Online lenders are more flexible.

Step 4 – Monitor the Underwriting Process

After your loan application has been sent, the underwriting team at the lender will review it. If you work with an online lender, this process may take several days. Traditional banks can take up to several weeks. You should monitor it regularly, regardless of whether you’re working with an online lender or a traditional bank.

Keep the lender informed of any changes to your credit or financial situation. They may be able to offer you a loan increase or terms that are more favorable based on your updates.

Step 5: Obtain financing

It’s a wonderful feeling to be approved for a loan for your business. It’s just a matter of days before your funds are transferred. Banks can generally take several days to approve all documents before they transfer the funds. Online lenders are faster, and in some cases, borrowers receive funding within 48 hours of submitting their application.

Once your loan has been approved, review your repayment plan and plan your finances accordingly. You could lose your credit score or incur additional fees if you miss or delay payments. This is why it is so important to plan ahead before signing on the dotted lines.

Factors That Can Stop You From Getting a Business Construction Loan

No matter what type of commercial loan you have applied for, certain factors could prevent you from being qualified. You might not be able to get financing if you have tax liens or have recently filed for bankruptcy. Lenders may also be reluctant to approve you for a loan if you have fallen behind in payments.

A poor credit history could also be a factor, especially if you are applying to a bank. Young businesses might have trouble getting financing if they don’t possess the minimum two years of business experience that banks require.

If possible, repair your credit rating before you apply for a loan. Try to keep up with your payments and pay down any outstanding balances.

Don’t be discouraged if you aren’t approved for a business loan. National’s business finance experts can help you to discuss your options. They are familiar with all industries and understand the different lending guidelines.

Compare loans for building projects with National Business Capital

Borrowers can be more prepared to obtain financing if they have the right qualifications for a loan for business construction. This means having good credit, a healthy income, and a well-developed plan. There are many options for contractors and construction companies, even if they don’t meet all the criteria.

Comparing the various types of loans available to your business can prove very helpful. You’ll gain a better understanding and be able to choose the best solutions for your company.

National Business Capital allows you to get offers from more than 75 lenders in just a few minutes. Get started.