Business Loans for Contractors: Rates, Terms & Where to Find

Contractors often need to invest in materials and supplies before taking on new jobs. A good choice for contractors are lines of credit that can fund in 1-3 days.The credit line can then be used, accessed and used again. And, interest is only charged on the amount of the credit line used. Other loans for contractors include longer term SBA loans with rates between 5 – 10% and terms of 10+ years.

OnDeck, who sponsored this article, offers a small business line of credit that can give your construction business the capital you need to fund your growth, deal with seasonality, or cover unseen expenses. You can qualify if you have a 600+ credit score, $100,000+ in annual revenue, and 1 year or more of business history. Their online application takes about 10 minutes and you can get funded in as quick as 1 day.

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Top 6 Business Loans for Contractors

How We Determined the Best Business Loans for Contractors

Regardless of the size of your construction business, you’ll often have to invest in your growth prior to onboarding new clients and servicing more job sites. This makes accessing capital extremely important for contractors like yourself. What’s more, the speed of funding and the ability to access growth capital on a recurring basis is paramount to a contractor who wants to scale fast.

When looking at the best business loans for contractors we, therefore, looked at the following:

• Flexibility
• Costs
• Speed of funding
• Maximum loan amounts
• Repayment terms
• Qualification requirements
• Financing needs for contractors

Traditional loans – like traditional bank loans – are often difficult for contractors to get approved for because traditional lenders view the construction industry as risky and unpredictable. Larger construction businesses ($1+ million in annual revenue) will find it easier to get approved for those more traditional loans, but they’re typically only used to buy out an existing construction company. These reasons are why we’ve chosen more alternative online loan options on this list.

As a contractor, you have a lot of different needs that vary based on the size of your business. A one-person plumber and a large construction company working on building a new hospital will have different capital needs, but both typically need general working capital to keep their business operating while they acquire new business and wait for existing customer payments.

We chose a business line of credit as the best financing fit for contractors because it has the widest use, allowing you to borrow what you need and you’ll only pay interest on the amount you actually use. Both individual contractors and larger construction companies will find a business line of credit to be an excellent option.

Business Line of Credit for Contractors

A business line of credit (LOC) is a revolving line you can repay and use over and over again to fund the growth of your construction company or to cover cash flow gaps for your seasonal business. You’ll only pay interest on the credit you use, so a LOC is a good fit for contractors needing quick financing to cover expenses on a new project with a fast start date.

A business LOC is a good choice for most contractors because you’ll have a line you can draw down against when needed and don’t have to access it if you don’t want to. You won’t have to wait to apply for a loan to get the financing you need to begin work on a new job and you won’t have to wait for customer payments to fund payroll if you have other contractors working for you. If you’re approved, there’s really no reason not to get one.

Small Business Line of Credit Interest Rates & Fees

The total costs for a business line of credit are best expressed in the annual percentage rate (APR), which is a combination of rates and fees. The APR and combined other costs will generally look like this:

• APR: 13.99 – 40%
• Prepayment Penalty: None
• Other Fees: Some lenders may charge service fees or other fees if you don’t use your LOC within a year, but these aren’t common.

Our recommended business line of credit provider for prime borrowers offers a LOC with an APR as low as 13.99% and your LOC is typically ready to make draws from in 1-3 days. They also don’t have service fees or any penalties for not using your LOC, making them a great options for contractors.

Small Business Line of Credit Terms

The terms of your LOC will generally look like this:

• Loan Amount: Up to $100,000
• Repayment Term: 6 Months
• Repayment Cycle: Weekly or Monthly
• Time to Funding: 1 – 3 Days

Small Business Line of Credit Qualifications

In order to qualify for a small business line of credit you’ll need to meet these minimum qualifications:

• Minimum Credit Score: 600 (check your credit score for free here)
• Minimum Time in Business: 1 Year
• Minimum Annual Business Revenue: $50,000

Individual contractors, like a handyman, may find it difficult to qualify if you don’t have a successful history of increasing revenues for 3-6 months or more. You can learn more by reading our guide to a business line of credit.

What’s Missing From a Business Line of Credit

A business line of credit is generally great for contractors looking to draw from a pool of capital as they need it. This is extremely beneficial if you onboard a new client with net payment terms and need to start work on the job site immediately. However, a LOC doesn’t provide a lot of capital with their lines maxing out around $100,000. If you need more financing for a specific working capital need with a known fixed cost or to buy an existing contracting business, then you’ll need to look at other options.

Where to Find a Small Business Line of Credit

OnDeck offers a LOC up to $100,000 with rates as low as 13.99% for prime borrowers. You can get approved by filling out their online application, which takes about 10 minutes. If approved, you could start drawing down on your LOC in as quick as 1 day.

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Short Term Business Loans for Contractors

Short term business loans for contractors are a good fit for those who need growth capital and have predictable expenses. This is because term business loans give you a lump sum amount and require fixed weekly or monthly amortized repayments of principal and interest. These loans can carry an expensive APR up to 50% but generally, have a competitive total cost of capital if you repay the loan within 12 months.

Short term loans are typically used to make immediate purchases because you’ll receive a lump sum amount that you’ll start paying interest on immediately. For example, if you want to hire a new employee for an upcoming job and know what his or her salary will be for the life of the contract, you can request a lump sum amount and use it to cover the salary until the job is complete.

These loans are not a good fit if you’re just looking to keep money for a rainy day or to draw from during seasonal down periods, like the winter months for landscaping companies.

Short Term Business Loan Interest Rates & Fees

The total costs for a short term loan will generally fall into these ranges:

• APR: 30 – 50%
• Prepayment Penalty: None

It’s worth noting that while there are no prepayment penalties with short term loans many of these lenders require you to pay a certain fixed dollar regardless of how long you’re in repayment. This is different than many traditional lenders who only charge you interest on every month you’re in repayment.

For this reason, it’s not something you should apply for unless you know exactly how you’re going to spend the money. If you need recurring access to capital to ramp up your business to prepare for potential new jobs, then this probably isn’t right for you.

Short Term Business Loan Terms

Short term loan terms will typically look something like this:

• Loan Amount: Up to $500,000
• Repayment Term: 3 – 36 Months
• Repayment Cycle: Weekly
• Time to Funding: 1-3 Days

Short Term Business Loan Qualifications

To qualify for a short term loan you must meet these minimum qualifications:

• Minimum Credit Score: 500 (check your credit score for free here)
• Minimum Time in Business: 1 Year
• Minimum Annual Business Revenue: $100,000

What’s Missing From a Short Term Loan

Short term loans are great if you know exactly what you need to buy, but if you know you need capital for recurring expenses then this isn’t likely the right option. These loans require you to make interest payments on the full amount you borrow and can be expensive if you don’t pay them back quickly. They’re also not a good option to help you prepare for unexpected expenses, like if your client expands their scope of work and expects you to cover the costs until completion.

Where to Find Short Term Loans

OnDeck offers short term business loans for contractors up to $500,000 and can fund in as quick as 1 day. You can start the process by filling out an online application where you could get pre qualified in about 10 minutes.

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Invoice Financing for Contractors

Invoice financing, or accounts receivable financing, helps construction companies unlock the value of their invoices earlier by issuing a loan based on their outstanding invoices due in less than 90 days. This financing works a lot like a business line of credit and you’ll make draws using your customer invoices as collateral. Plus, you’ll only pay interest on the amount you borrow.

Invoice financing is best for larger construction companies who invoice a lot of their customers that are typically other businesses. For example, contractors who perform commercial work often bill their clients on net 30 or 60-day terms. So, if you need to ramp up your next commercial project within that 60-day window (known as a drag on liquidity as you wait for customer payments), you can use invoice financing to unlock the value of your unpaid invoices.

Invoice Financing Rates & Fees

The total costs of invoice financing typically look like this:

• Discount Rate (Fees): 0.5 – 0.7% of each invoice per week
• Prepayment Penalty: None

Invoice financing companies will charge you a weekly fee for every week you’re in repayment. If you pay back the loan early then you’ll likely be able to save money because you’ll be cutting down the number of weeks you pay interest.

Invoice Financing Terms

Invoice financing carries the following terms:

• Loan Amount: $1k – $100,000
• Repayment Term: 1 – 24 Weeks
• Repayment Cycle: Weekly
• Time to Funding: 1 – 3 Days

Invoice Financing Qualifications

In order to qualify for invoice financing you’ll need to meet these minimum qualifications:

• Minimum Credit Score: No credit check – 530+ (check your credit score for free here)
• Invoice Qualifications: Must be due in the next 90 days
• Other Requirements: Customers must be creditworthy

Invoice financing could be a good option for contractors who don’t want their credit checked, or who have less-than-perfect credit, because some lenders look at other factors besides your credit. These lenders are more interested in the creditworthiness of your customers than they are of your own because your customers will essentially be repaying what you borrow. You can learn more by reading our guide to invoice financing.

What Invoice Financing is Missing

Invoice financing is a good fit for construction businesses that invoice a lot of customers, but you can only borrow up to $100,000 and you must repay the loan within 24 weeks. Plus, if you don’t invoice a lot of customers you won’t be able to finance very much at all. These loans are also based on the repayment ability of your customers so if you have unreliable customers then this might not be the best fit for your business.

Where to Find Invoice Financing

You can get invoice financing from specialized lenders who focus on accounts receivable lending. You can read our guide to the best invoice financing companies to learn more.

Equipment Financing

Equipment financing is a loan used to purchase large equipment with a long shelf life. The equipment you’re buying is used by the lender as collateral for the loan. This type of financing is a good fit for larger construction businesses with large job sites like schools or hospitals. These businesses might need to buy new bulldozers, loaders, or a Caterpillar, and equipment financing will help you pay for those costs.

Equipment financing is only going to be a good fit for a small fraction of contractors because individuals working for themselves won’t typically need this type of large equipment. Equipment financing can be structured as either a loan or a lease and the costs of your financing will depend on the one you choose, with a lease carrying a more affordable payment.

Equipment Financing Interest Rates & Fees

Equipment financing generally carries these costs:

• Interest Rates: 6 – 9%
• Prepayment Penalty: None

Equipment Financing Terms

Equipment loans will typically have terms that fall within these ranges:

• Loan Amount: $10,000 – $500,000 (up to 95% of equipment costs)
• Repayment Terms: 2 – 7 Years (typically 5 years)

Equipment Financing Qualifications

You can generally qualify for equipment financing if you meet these qualifications:

• Minimum Credit Score: 600 (check your credit score for free here)
• Down Payment: 5%+ (10-20% for owner-operators)
• Collateral: Financed equipment
• Time in Business: 2+ Years (startups with industry experience might qualify)

What Equipment Financing is Missing

Equipment financing is a great fit to buy large equipment for your construction company but it has no other purpose. It’s only going to work for larger contracting businesses looking to replace their current equipment or expand their service offerings. If this doesn’t describe you and your needs, then any other option in this article would be a better fit.

Where to Find Equipment Financing

Equipment financing can be found at banks or other traditional lenders. You can learn more about these loans and where to find them by reading our ultimate guide to equipment loans.

Business Credit Cards for Contractors

Business credit cards are a good fit for every contractor because they’re easy to qualify for and you can use them to finance smaller working capital expenses. Every contractor should likely have a business credit card to use in case of emergency. Many of these cards provide cash back or points that can be redeemed for rewards, as well as 30-day terms to pay off your purchases before you incur any interest debt.

For example, one good use of a business credit card is to pay for fuel on your company truck. You’ll likely have many trips going to pick up supplies, going directly to the job site, or taking hauls of debris off the property. Fuel expenses are going to cost you regardless of how you pay for them, but a business credit card can give you a discount at the pump. Read our article on the best fuel cards to find the right one for you.

Another great reason to use a business credit card as a contractor is that you can set up automatic recurring payments for things like your contractors insurance premiums. This way you won’t forget to pay any bills while you’re growing your construction business and you can even earn rewards in the process.

Interest Rates & Fees

The costs associated with a business credit card typically are:

• Interest Rate: 12 – 29%, some have 0% introductory offers
• Annual Fee: $0 – $350+

Business Credit Card Terms

The terms of a business credit card will generally look like this:

• Loan Amounts: Up to $100,000 but typically less than $30,000 for most businesses
• Repayment Terms: 30 days interest free
• Time to Funding: Instantly – 2 weeks (time it takes to receive your card)
• Initial Rewards: Introductory APR of 0% for 7 – 18 months, and a cash bonus (or points bonus) if you spend a certain amount within the first 2-6 months.
• Ongoing Rewards: Cashback or rewards points

Business Credit Card Qualifications

The minimum qualifications for a business credit card are:

• Minimum Credit Score: 650+ for best offers (check your credit score for free here)

The only two qualifications that matters are your annual business revenue and your personal credit score. There are no set requirements for your revenue in order qualify but the more you have the more of a credit line you’ll likely receive.

What Business Credit Cards are Missing

Business credit cards are a good fit for any contractor, regardless of the size of your business. They offer a great way to get a small working capital line of credit with 30-day terms. However, these credit cards typically don’t carry very large credit line amounts. Most business credit cards are for less than $30,000 and individual contractors will get approved for much less than that.

Where to Find Business Credit Cards

Business credit cards are offered by large credit card companies and banks. You can learn more by reading our guide that provides the best small business credit cards. If you’re a handyman or individual contractor then you might need to instead read our article on the best personal cards for business owners since you’ll have a better shot at getting approved for those cards.

SBA Loans for Construction Companies

An SBA loan is guaranteed by the Small Business Administration (SBA) and carries long repayment terms with some of the lowest rates available to businesses. These loans are used to finance the purchase of long term equipment, to buy real estate, or to fund the purchase of a construction company. These loans aren’t an option for small contractors needing short term working capital.

For example, if you’re looking to buy out a competitor’s book of business or to purchase a new facility to house your landscaping equipment, then this could be the right option for you. However, if you need a short term cash infusion to get your new marketing plan off the ground then there are other options that could work better.

SBA Loan Interest Rates & Fees

The costs of an SBA loan will vary by lender and your credit profile, but generally they’ll consist of the following:

• Interest Rate: 5% – 10% (check current SBA loan rates)
• Prepayment Penalty: None and you can save money by paying it off early by reducing the amount of interest you’ll pay.
• Origination Fee: 0.5 – 3.5%
• Loan Packaging Fee: $2,000 – $4,000
• SBA Guarantee Fee: 3 – 3.5% (Waived if loan amount is under $150,000)

SBA loans generally have low interest rates but the fees can be expensive if you’re only looking for short term financing. You can learn more about these fees by reading our article on the SBA guarantee fee.

SBA Loan Terms

Terms for an SBA loan will generally look like this:

• Loan Amount: Up to $5 million
• Repayment Terms: Up to 10 years
• Repayment Cycle: Monthly
• Time to Funding: 30 – 90+ days

SBA loans take a long time (90 days or more) to get funded due to the paperwork and underwriting process involved. You can learn more about the SBA loan process by reading our article on how to apply.

SBA Loan Qualifications

To qualify for an SBA loan you’ll need to meet these minimum qualifications:

• Minimum Credit Score: 680 (check your credit score for free here)
• Collateral: Typically required
• Down Payment: 10-20%
• Time in Business: Startup – 2+ years

SBA loans are the most difficult to qualify for of all the financing options on this list. You can improve your chances by making sure you have the right business licenses and proof of the needed contractors insurance ready before you apply.

What’s Missing With an SBA Loan

SBA loans are great for long term financing to buy a construction business or something similar, but they take a long time to get funded and they’re difficult to qualify for. Most small independent contractors won’t get access to capital for months, which makes it a bad fit for immediate working capital needs.

Where to Find SBA Loans

SBA loans can be found by applying at a bank or other traditional lender. If you’re not sure where to look you can read our article on the top 100 SBA lenders.

How to Increase Contractor Loan Approval Odds

Contractors may find it difficult to qualify for the right loan, but taking certain actions can greatly improve your overall chances at getting approved. You need to maximize your revenue and be able to paint the picture to your lender that your business is stable and growing. In order to do that you should follow the key tips we’ve put together to help you get approved for a business loan.

The 3 keys to getting funded for a business loan for contractors are:

1. Show How You Can Repay the Loan

Your lender is mainly interested in your ability to repay what you borrow. They aren’t in the business of lending to organizations that default. This makes it important for you to clearly represent your business in a way that shows that it’s growing and that it has the capability to repay more than what you’re borrowing.

According to Ty Kiisel, Editor for OnDeck,

“Make sure you have a good understanding of your credit profile, can clearly articulate your loan purpose, and have the revenue to make the periodic payments. A lender might not ask the questions this way, but they want to know: Can you repay a loan? Will you repay a loan? And, do you have a plan should something unexpected happen to ensure that you will still be able to repay a loan?”

While your credit score and annual business revenue are important to meeting the minimum qualifications standards of your lender, your ability to repay is the most important thing. Many lenders calculate your debt service coverage ratio (DSCR) as a way to determine whether you’ll be able to repay the loan or not. You can learn more by reading our article on DSCR.

One great way to show this is to have contracts in place with upcoming jobs, allowing you to show increasing revenue. Further, only apply after you’ve done enough construction jobs to have adequate capital already in the bank.

2. Only Apply if You Meet the Qualification Requirements

Many businesses apply for a loan they have no chance in which to get approved. Most lenders list their minimum qualifications as the absolute lowest standard for approving a loan. However, the majority of businesses approved typically far exceed those minimum requirements. Applying for something you have no chance at getting is a waste of time and money.

You should focus your time on only applying to loans in which you exceed the minimum qualifications. After all, even if you get approved for other loans you wouldn’t likely get a very large loan amount. The highest amounts only go to the best borrowers. If you don’t exceed the minimum qualifications then work on your credit profile or business revenues before you apply.

As a contractor, you can do this by forming a personal relationship with your banker or preferred lender. Ask them how they view the construction industry and inquire about your odds of approval, given your specific fundamentals.

3. Don’t Ask for More Than You Need

You never want to borrow more money than you need because that means you’ll be paying interest on that money. As a contractor, your ability to meet your expenses may already be tight, so it’s important that you don’t take on additional interest payments that you don’t need. Contractors need to eliminate as many expenses as possible when you’re in-between projects so you don’t want unnecessary payments hanging over your head.

Asking for more than you need could also turn off your lenders. Part of the application process is to quantify how you’ll spend what you’re asking for. If the lender determines that you’re asking for too much money then it could deter them from doing the loan at all because they might lose faith in your ability to operate efficiently.

Bottom Line

It can be difficult getting approved for a loan if you’re a contractor because your industry can be seasonal and inconsistent. However, you still have plenty of options to get the working capital you need to fund your day-to-day business activity. The best business loans for contractors are flexible and can fund quickly to help you get the capital you need in a timely manner.

OnDeck offers a business line of credit up to $100,000 and you can typically qualify if you’ve been in business for at least 1 year, have a 500+ credit score, and have annual revenue of $100,000 or more. You can apply by filling out an online application that takes about 10 minutes and you could receive your funds in as quick as 1 day.

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