Construction Business Loans: Financing for Contractors

Construction businesses run on cash, and there's never enough of it at the right time. You pay for materials and labor upfront. Customers pay you later, sometimes much later. Retention holdbacks tie up 5% to 10% of every project for months after completion. 

This cash flow reality means most contractors need financing at some point, whether for equipment, bonding capacity, payroll gaps, or growth. 

Here's how to get a construction business loan and what options work best for contractors.

Why Construction Financing Is Different

Banks have a complicated relationship with construction lending. The industry's project-based revenue, seasonal fluctuations, and dependence on economic cycles make underwriters nervous.

According to the Associated General Contractors of America's 2024 Workforce Survey, 94% of construction firms reported difficulty filling positions, with labor shortages driving up costs and project timelines. These industry-wide pressures affect how lenders view construction borrowers, often resulting in stricter requirements or higher rates than other industries face.

That said, construction is a massive sector and plenty of lenders want your business. The key is finding lenders who understand how construction companies actually operate rather than trying to fit your business into a model designed for retail or service companies.

Types of Loans for Construction Businesses

Different financing products solve different problems. Match the loan type to what you actually need.

Working Capital Loans

Working capital loans provide cash to cover operating expenses when revenue timing doesn't align with obligations. For contractors, that's most of the time.

Short-term loans ranging from $5,000 to $500,000 can bridge gaps between project payments. Use them for payroll, materials, subcontractor payments, or any expense that can't wait for your next draw or final payment.

Business Lines of Credit

A business line of credit gives you flexible access to funds you can draw on as needed. You only pay interest on what you use.

For construction companies, lines of credit work well for managing the unpredictable timing of project-based work. Draw funds when you need to front materials costs, pay it back when the customer pays you, and repeat. It's a revolving safety net that adapts to your actual cash flow needs.

Equipment Financing

Construction equipment is expensive. Excavators, loaders, trucks, lifts, and specialized tools can cost tens or hundreds of thousands of dollars. Equipment financing lets you spread those costs over time.

The equipment itself serves as collateral, which typically makes approval easier than unsecured financing. Terms usually match the equipment's useful life, and some lenders offer leasing options that keep equipment off your balance sheet.

Invoice Factoring

If you're waiting on payments from creditworthy customers, invoice factoring converts those receivables into immediate cash. A factoring company advances 80% to 90% of the invoice value upfront, then collects from your customer directly.

This works particularly well for contractors working with general contractors, government agencies, or large commercial clients who pay reliably but slowly. Your approval depends more on your customer's creditworthiness than your own.

SBA Loans

SBA loans offer the lowest rates and longest terms available. They're worth pursuing for major equipment purchases, real estate, or significant expansion.

The downside is time. SBA loans take 30 to 90 days to close. If you need to mobilize for a project next week, look elsewhere. But for planned investments where you can wait, SBA terms are hard to beat.

Qualification Requirements

Construction companies face some unique qualification considerations beyond the standard requirements.

Time in business. Most lenders want at least six months of operating history, with many preferring one to two years. Newer contractors have fewer options but can still access certain products.

Revenue. Lenders typically want to see $10,000 to $15,000 or more in monthly revenue. They'll review bank statements to verify deposits and assess consistency, understanding that construction revenue can be lumpy.

Credit score. Traditional lenders want scores of 680 or higher. Alternative lenders work with scores as low as 500, though your options expand and rates improve at higher scores. Check out our guide on bad credit business loans if credit is a concern.

Project pipeline. Some lenders want to see your backlog or contracted work. A strong pipeline of signed contracts provides confidence that revenue will continue.

Bonding capacity. If you do bonded work, lenders may consider your bonding limits and history as part of their evaluation.

Managing the Cash Flow Gap

The construction cash flow cycle creates financing needs that other industries don't face.

Mobilization costs. You often need to purchase materials and pay workers before you receive your first draw. That gap requires capital.

Retention holdbacks. Even after a project is "complete," 5% to 10% of the contract value sits in retention for months. That's money you've earned but can't access.

Slow-paying customers. General contractors and commercial clients often take 60 to 90 days to pay. Government work can take even longer.

Seasonal swings. Many construction markets slow dramatically in winter months, creating cash flow valleys that need bridging.

Understanding these patterns helps you choose the right financing. A line of credit handles ongoing timing gaps. Invoice factoring accelerates specific slow receivables. 

How to Strengthen Your Application

A few things improve your chances of approval and better terms.

Separate business and personal finances. Use a dedicated business account for all company transactions. Mixed finances make it harder for lenders to evaluate your business.

Document your backlog. Signed contracts and a clear project pipeline demonstrate future revenue. Lenders gain confidence when they can see work already in hand.

Keep clean records. Organized financials signal a well-run operation. Have your bank statements, tax returns, and profit and loss statements ready before you apply.

Explain your business model. If your revenue looks irregular on paper, provide context. Lenders who understand your project mix and typical payment terms can underwrite more accurately.

Start building relationships before you need them. The worst time to approach lenders is when you're desperate. Establish relationships when business is good so you have options when challenges arise.

Common Uses for Construction Loans

Contractors use financing for a wide range of purposes.

Equipment purchases. Buying or upgrading trucks, machinery, tools, and technology.

Project mobilization. Funding upfront costs for materials and labor before draws begin.

Payroll coverage. Ensuring workers get paid on time regardless of customer payment timing.

Bonding support. Maintaining or increasing bonding capacity to bid on larger projects.

Seasonal bridge. Covering overhead during slow winter months.

Growth opportunities. Taking on larger projects or expanding into new markets.

Whatever the use, be specific when applying. Lenders respond better to clear explanations of how funds will be used and how they'll be repaid.

Frequently Asked Questions

Can I get a construction loan with bad credit?

Yes. Alternative lenders work with credit scores as low as 500. Approval focuses more on your revenue, project pipeline, and cash flow than your personal credit history. Expect higher rates than borrowers with strong credit, but funding options exist.

How fast can contractors get funded?

Merchant cash advances and some online lenders fund within 24 to 48 hours. Most online term loans and lines of credit take one to five business days. SBA loans require 30 to 90 days or longer.

Do I need collateral for a construction business loan?

Not always. Many working capital loans and lines of credit are unsecured. Equipment financing uses the equipment as collateral. Larger loans may require additional security or a personal guarantee.

How much can my construction company borrow?

Amounts range from $5,000 to several million depending on the product and your qualifications. Most small business loans fall in the $25,000 to $500,000 range, with larger amounts available for established contractors with strong financials.

Will project-based revenue hurt my application?

It can make underwriting more complex, but lenders who specialize in construction understand lumpy revenue. Documenting your backlog and explaining your typical project cycle helps lenders evaluate your business accurately.