Getting access to capital is the first step in building a successful business. If you're a small business owner, you probably already know that it takes money to make money. But there are many things that you can do to find the right loan for your business. One of the most important factors you should consider when building a successful business is having the proper funding available to support your company's operations. Construction loans and other types of financing can help you get the capital you need to start and grow a business. In this article, we'll talk about some of the different types of loans that can help you build a successful business. What are construction business loans? Construction loans are typically used for the financing of various projects, such as the purchase of equipment or the renovation or expansion of an office space. These types of loans can also be used to pay for other expenses related to the project, such as the installation of solar power systems. Where to get a commercial construction loan or financing? A commercial construction loan can be obtained from a variety of sources, such as banks, credit unions, and private funders. Some Small Business Administration loans can also be used for this type of project. For commercial projects, a funder will typically only fund a portion of the project. The loan-to-cost ratio, which is the measure of the loan's value, typically ranges from around 70% to 90%. You'll also have to pay the remaining expenses, which usually include a down payment. The cost of a construction business loan can increase due to various factors, such as processing fees, guarantee fees, and project review expenses. Some funders allow you to include these fees in your loan so that you can pay them off over time. If you're worried about this, consider using alternative sources of financing for your project. 1. Equipment loans A common type of construction loan lends you the amount of money that you could get from the value of your equipment. This type of loan can be very beneficial for small business owners who have a lot of equipment assets. You can also use an equipment loan to purchase various types of equipment, such as medical equipment and office furniture. Some companies only provide small-business loans for this type of loan. However, banks and other funders can provide you with this type of loan. 2. SBA Loans The Small Business Administration's 504 loans are also known as term loans, and they can be structured as a loan with a specific amount and a repayment schedule. These loans are part of the agency's three main loan programs.
SBA 504 loans are typically long-term loans that can be used to finance major purchases for a business, such as machinery or real estate. On the other hand, SBA 7(a) loans are typically used for construction projects. If you're able to wait for funding, the SBA 504 loan program of the Small Business Administration can be very beneficial for small-business owners who need to make large purchases. However, if you need fast funding, the requirements for this type of loan are very demanding. 3. Invoice factoring Construction companies typically have to wait around 30 to 90 days for their customers to pay their invoices, which can negatively affect their cash flow. A loan for invoice financing or factoring can help you get quick access to funds. With an invoice factoring loan, the funder will give you an advance on a portion of the money you owe, and they will then pay the full amount. If you have a steady stream of clients who pay their bills a little bit slower, invoice factoring might be an ideal choice. 4. Merchant Cash Advances or Revenue-Based Financing Many construction companies have a hard time finding alternative funding sources. They turn to merchant cash advances, which are revenue-based financings, for their short-term needs. These loans are ideal for businesses that need fast funding to cover their short-term expenses and cash flow issues. A merchant cash advance can be a great alternative to traditional financing for construction companies. It can help them meet their contractual requirements and quickly get the funds they need. One of the main advantages of this type of loan is that it allows businesses to get quick access to funds.