Contractor Business Loans

What are the best types of contractor business loans?

Term Loans

Term loans provided by alternative lenders are generally the most popular form of funding for contractors, because they offer fast funding (usually within 3 days of approval) and lower qualification requirements than other types of financing. Interest rates and terms vary significantly depending on the length of the term and your creditworthiness, but generally range anywhere from 5% to 99%. Terms can be as short as 3 months or as long as 10 years.

SBA Loans

SBA loans are a popular choice for contractors because they offer such low interest rates (2.89% - 13%). The Small Business Administration guarantees these loans with local and independent lenders over terms of 12 months to 10 years or even longer for real estate purchases.

While these loans are definitely some of the best available to contractors, they are generally more difficult to qualify for and funding times can make them impractical (it can take up to 12 weeks to receive funds).

The SBA offer three different types of loan:

• 7(a) loan program: this is their most popular loan and it offers funding for any business need
• 504 loan program: can only be used for large assets and real estate
• Microloan program: provides funding up to $50,000 for female-led and minority business owners

Equipment Loans

If you’re looking to purchase equipment, an equipment loan may be the best choice for you. This type of loan uses the equipment you purchase as collateral for the loan, which helps keep interest rates low. In all other ways it is like a term loan, and you repay with a monthly (or sometimes weekly) payment. The lender will want to approve the equipment you want to purchase or may purchase it on your behalf.

Business Line of Credit

A business line of credit works like a credit card and provides flexible borrowing up to a specified credit limit, the main difference being you can use the funds for almost any purpose and the credit limit is usually higher. As with credit cards, you only pay interest on the money you borrow and you can reuse credit once you’ve repaid it.

Business Credit Card

If you only want to borrow a relatively small amount, a business credit card may be the best option for you. These work just like a personal credit card (often with similar interest rates, benefits, and fees) but are tied to your business finances.

Invoice Financing

Invoice financing is where you borrow the amount of money you’re waiting to be paid on an invoice from a third-party company and pay it back when your client pays you. Alternatively, invoice factoring is also an option; this is where you sell an unpaid invoice to another company. The latter can be costly if your client doesn’t pay in a timely manner and you also lose control of the customer experience. Be aware that with both you need to be B2B, not B2C.

What are the pros and cons of contractor business loans?

PROS

• Grow your business sooner rather than later
• Take advantage of time-limited opportunities
• Ease cash flow issues
• Low interest rates possible for those with good or excellent credit

CONS

• You usually have to provide a personal guarantee and business lien
• The best loans require high credit scores
• If you don’t manage your cash flow properly, you may find yourself struggling to pay between projects

How to Qualify for a Contractor Business Loan

To qualify for the best contractor business loans, you’ll need:

• A credit score of 600 or higher
• A minimum annual revenue of $50,000 - $100,000
• At least 1 year in business
• Be willing to put up a personal guarantee and business lien

If your business is seasonal, make sure you prepare appropriate documents that show a potential lender how you plan to pay for the loan during this period and that your business reliably does more business after this period.

How to Apply for a Contractor Business Loan

Applying for a contractor business loan is fast and straightforward with the majority of lenders. You’ll need to have your personal, business, and financial information ready, so be prepared to share tax returns, bank statements, and other financial documents if asked. Most applications allow you to save your progress, so don’t panic if you need to pause to gather more information.

Compare and Apply Now

The most important thing you need to consider when looking for a contractor business loan is the interest rate. The interest rate will dictate how much your loan costs you overall and how affordable you find the monthly repayments. Make sure you try to get the lowest interest rate you can and use our calculator to find out what a potential interest rate may cost you. Once you find the right loan for you, all you need to do is apply. You could have the funding you need in as little as 3 days from today, so get started now.