Construction Financing: Don’t Miss Jobs Because Banks Take Too Long

Maintaining good cash flow can be a catch-22 when you run a construction company. Clients don’t always pay as quickly as you’d like. But on the other hand, you can’t accept other contracts until you have enough money to purchase materials and pay employees.

Construction business loans are an option for bringing in cash to take on more projects while you wait to get paid.

The problem? Trying to get a loan from a bank isn’t a quick process, and you may find yourself waiting weeks or months for your application to be approved. Meanwhile, competitors with more consistent cash flow could snap up the jobs you were hoping to land.

If you’re facing this dilemma, it may be time to consider another solution. Alternative financing offers options for construction companies in need of faster funding than banks can provide, giving you the financial backing you need to stay in the game.

Why Banks are Slow with Business Loans for Contractors

According to Small Business Trends, a recent survey showed 16.3% of business owners seeking funding waited over a month to hear back about their applications, and 7.5% waited six months or longer! What’s more, these numbers only represent the time business owners were delayed after submitting their applications.

Preparing to apply for a business loan is a process in itself. Banks are known for being avoiding risks at all costs, and want to ensure applicants have the financial stability to meet payment obligations before agreeing to lend any money. To qualify, you usually need to show up with a high credit score and a collection of paperwork, including:

  • Detailed business financial information
  • Personal financial information
  • Proof of collateral
  • Information on intended loan use
  • A business plan

More or less documentation may be required depending on the type of loan for which you apply.

The Mystery of Bank Loan Approval Rates

Although small business loan approvals appear to be on the rise, only 27.5% of applications are accepted by big banks. Small banks have slightly higher approval rates of 49.9%, according to Forbes. Why are between about half and two-thirds of businesses turned down? 

Even if your finances look good, your application may be rejected due to:

  • A short time in business
  • Unfavorable economic conditions
  • Poor industry projections

In short, it’s a long time to wait when there’s no guarantee you’ll get funding after your application has been reviewed. The success of your construction company depends on consistent work, and you can’t afford to turn down multiple jobs because the bank is leaving you hanging.

However, there are times when a bank loan may be suitable. If cash flow is good and clients are paying on time but you want to make a big investment to grow the company, you could take advantage of the low interest on bank loans to obtain additional funding at affordable rates. Keep in mind that construction is considered a high-risk industry, and a bank may request a down payment on certain loans, such as equipment financing.

What Happens When You Wait for Construction Loans

If you’re confident your business meets a bank’s qualification requirements, is playing the waiting game really so bad? It all depends on how long you can realistically delay taking on more work. Not to mention, how many competitors are waiting in the wings to pick up the jobs you can’t afford to take on.

You need money to get projects off the ground, and sometimes all that stands between you and landing a lucrative construction contract is a handful of unpaid invoices. Or maybe you need just one piece of new equipment to deliver the results a client wants.

The longer you wait, the more opportunities you lose. This can slow down business growth, or even spell the end of your company if employees decide it’s better to look elsewhere for paying work.

How Alternative Lending Companies Can Help

Alternative lenders offer small business loans at approval rates of about 56.8%, higher than both large and small banks. You can access some of the same types of funding available through banks, including term loans and lines of credit, without spending weeks gathering paperwork and waiting for approval.

Compared with banks, alternative lenders:

  • Have lower or no FICO requirements
  • Ask for fewer financial details
  • Only request more paperwork for certain loan types or amounts
  • Are more willing to lend to high-risk industries
  • Offer greater flexibility
  • Can provide funding in a few days

Easier qualification and faster delivery of funds means you can jump on the best opportunities for your construction business regardless of whether you still have outstanding invoices. Once clients square up with you, the money can go toward paying off the loan, so you don’t have to worry about long-term debt cutting into your bottom line.

Best Types of Alternative Lending for Construction Businesses

Most alternative lenders offer multiple funding options with terms and rates based on the overall financial health of your company. As you compare companies, consider these top loan types for construction:

  • Small business loans provide cash to purchase materials and equipment at the start of projects, hire extra staff to take on bigger jobs or cover expenses during the off season.
  • Lines of credit guarantee you always have extra funding available to make purchases while preserving your cash flow. Since you only have to pay when you draw on the credit line, you’re never stuck with long-term debt.
  • Equipment financing gives you access to new equipment to get jobs done faster and improve job site safety. Equipment purchased this way is usually eligible for the Section 179 tax deduction.

Fast Financing for Contractors: Discover Your Options

It doesn’t make sense to let great contracts pass you by because you’re waiting for payments from previous clients, or caught up in the drawn-out process of trying to secure a bank loan. You can get flexible funding in just a few days with alternative financing from National Business Capital & Services.

By tapping into a global marketplace of over 75 different lenders, National works to find a loan option that’s right for your construction company. Getting the best fit is important; you don’t want to wind up with less than you need to see a project through to completion, or spending most of your profits on interest and fees.

Whether you’ve been in business for a few months or are a fixture in your industry, the financing advisors at National can help connect you with funding to bolster your cash flow so that you can get back to work.

National Business Capital & Services is the #1 FinTech marketplace offering small business financing and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time.
For every deal we fund, we donate 10 meals to Feeding America!

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About the Author, Matt Carrigan
Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!