There are certainly some business owners who can finance the construction of a new home or office building out of their own pockets. But they’re rare, to say the least.
That’s because there are a ton of costs associated with construction. You have to buy property; create blueprints; acquire supplies, equipment, and machinery; pay a staff; get insurance; have inspectors come by to sign off on everything; and even cover landscaping expenses. The list goes on and on. According to HomeAdvisor, the average person building a home can expect to fork over more than $300,000 to get the job done right.
For the most part, owners of small construction companies need to look to outside sources of financing to cover these costs. Unfortunately, this is often easier said than done, particularly when the folks who need money aren’t blessed with spectacular credit scores.
Traditional lenders used to sign off on more loans when the housing and real estate markets were booming. But after the bubble burst, they curtailed the amount of funding they approve.
This reality puts small businesses owners in a difficult situation. Because banks are approving fewer and fewer loan applications for construction, borrowers who have strong credit scores and sparkling financial and tax information are usually the only applicants to whom funding is extended.
But not everyone is fortunate enough to be blessed with great credit and strong financials. Luckily, if you find yourself without great credit and strong financials, you’re not completely out of options.
While banks might refuse to lend you money if you have a poor credit score, alternative non-bank lenders aren’t as hesitant to fund construction businesses that have steady financials. So long as you have demonstrated that you can generate revenue and have a plan, your loan application is very likely to be approved by a non-bank lender.
Small-business loans from non-bank lenders provide construction companies with a number of benefits. Here are four of them:
You’ll be funded quickly. Construction companies can’t exactly afford to wait around. Once ground is broken on a project, construction needs to wrap up quickly. Otherwise, unfinished homes can be lost to the elements. Unlike bank loans which can take months to secure, the entire application process for loans from non-bank lenders can be wrapped up within 15 minutes. Once you’re approved, money is available in your account within 24 hours. You can fund your projects right away.
You won’t have to put up collateral. Non-bank lenders offer unsecured loans, which means you don’t have to put up any property or equipment in order to obtain funding. If for whatever reason you are unable to repay your loan, you won’t have to worry about losing your home or any machinery. Because non-bank lenders don’t require borrowers to put up any collateral, loans usually have higher interest rates. Is it worth spending a little more money to ensure you don’t lose your property?
You will build your business’s credit score. In addition to securing loans from non-bank lenders, construction businesses with bad credit scores can obtain funding through other means—like credit card advances. While advances can help bridge cash gaps on a short-term basis, they won’t really help your construction company over the longer term. When you repay your construction loans on time, not only are your short-term cash problems solved, but you’re also able to help rebuild your company’s credit score—a win-win situation.
You can take advantage of repeat customer benefits. Find the right non-bank lender and repay your loans on time and you’ll be able to unlock repeat customer benefits—which means it’ll be cheaper to borrow in the future. Over a long enough period of time, your business’s finances can become strong enough to the point that you’ll never need to look for outside funding again.
Don’t let your suboptimal credit score deter you from realizing your dreams. Apply for a construction loan from a non-bank lender today. That way, you won’t have to cut any corners as you build great homes and grow your business.