Construction Business Financing

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Construction Business Loans & Funding

There’s almost nothing more exciting than the prospect of designing and building your own home; you get to choose every aspect of the home to your preference, from the layout to the kitchen counters, right down to the color of your door hinges. The only down side?

The cost. Construction simply isn’t cheap and cutting corners shouldn’t be an option. To bring your vision to life, you’ll need a construction loan.

Applying for a construction business loan is fast and easy:

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Where to find construction business financing

FundBox Business Loans


Funding: Borrow $2,500 - $150,000
Minimum Credit Score: 600
Loan term: 12-24 months
Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

What is construction business financing?

A construction loan is a loan provided by a bank or other financial institution for the acquisition of land and the building of a home or other building. It is usually a short-term loan and the interest is often on the high side.

When you buy an existing home you get a mortgage but to finance your self-build project you need a construction loan.

How does a construction loan work?

A construction loan can be used by anyone looking to get finance to build a home, a commercial property, or other real estate project. Lenders need to charge a higher interest rate and a substantial down payment because, until the building is completed, there is very little of value to act as collateral for the loan.

These loans are usually time-dependent, lasting only until the project is completed. With an approved timeline the lender makes the funds available. This works like a line of credit rather than a term loan. The borrower will draw the cash they need for each stage of the construction, only paying interest until completion.

Periodically the lender will send someone to inspect progress, releasing money as appropriate. The borrower only pays interest on the money borrowed, not the entire amount.

Once built, the borrower is often able to convert the loan into a mortgage – known as a construction-to-permanent loan – or seek a mortgage from another lender to repay the loan.

A construction loan can provide money for the equipment needed, the hiring of contractors, and the building materials as well as the purchase of the land.

What can construction financing be used for?

  • New construction (residential and commercial developments)
  • Land purchase and development
  • Permits
  • Contractor labor-related expenses
  • Building supplies and materials
  • Damage expenses
  • Hiring contactors
  • Company facility expansion

Can I use a construction loan to renovate a home?

Yes, but in most cases, it won’t make sense to do so. Unless you’re embarking on a big renovation (such as an entire single family home, multifamily home, apartments, and similar) you’re better off looking at other personal loan options.

What are the different types of construction loans?

  • Construction-to-permanent loans: As mentioned above, if you take out a C2P loan, at the completion of the building project the amount outstanding is converted into a traditional mortgage. This mortgage will have low-interest rates and a generous term because now the finished building has value and is the collateral. A C2P loan has the advantage of reducing paperwork and only incurring one set of closing costs.
  • Construction-only loans: Does what it says on the tin and pays purely for the purchase of land and construction. Once the building is finished the borrower is responsible for repaying the entire debt by the due date. This will often mean approaching a mortgage company to supply the money as when buying a house.
  • Renovation construction loans: Some lenders will be willing to finance renovations with a construction loan but only if structural changes are necessary. You may be better advised to seek a renovation loan from the FHA or a HomeStyle loan from Fannie Mae.
  • Commercial construction loans: If you are thinking bigger than a single home or property you should probably look for a commercial construction loan. However, because of the risks involved lenders typically want the developer to provide much of the money themselves.

What are the pros and cons of construction loans?


  • A construction loan allows you the chance to build your dream house when otherwise you don’t have the capital.
  • You only pay interest on the amount drawn.
  • It is a more customizable way of borrowing that will fit your project.
  • The lender will help make sure the construction stays on time and on budget.


  • Higher interest rates than some other loans.
  • You need a plan to pay off the loan at the end of the project if you haven’t got a C2P loan.
  • A construction loan can be hard to qualify for and you’ll need a down payment.

How much down payment is required to qualify for a construction loan?

Generally, you will need a minimum 20% down payment before a lender will be prepared to lend you the money. Many loan companies demand even higher percentages, commonly 25% to 30% of the total cost involved.

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What is required to qualify for a construction loan?

  • Good to excellent credit. Most lenders are looking for credit scores of 700 and above before they will consider lending you money for new construction.
  • A low debt-to-income ratio of less than 45% is required to reassure the lender that you can afford the monthly payments.
  • The lender will want to see detailed plans and a carefully worked out timescale for the whole project.
  • Financial statements to demonstrate you are low-risk.
  • You will need to demonstrate to the lender that you are employing a well-qualified architect and a qualified and licensed contractor.
  • You must ensure all required permits and licenses are valid.

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5 Tips for choosing the right construction loan lender

Don’t be too hasty when choosing a construction loan provider, you need to make certain they are offering the right product to fit you and your project.

  1. Make sure they offer the type of construction loan you need.
  2. Determine how much interest they are going to charge (bear in mind this may vary with time).
  3. If you already own the land, find out if they will accept its value as part of the down payment.
  4. Ask how the draws are scheduled during construction.
  5. Get a detailed estimate of closing costs and any other fees they charge.
  6. Read the small print carefully so you know exactly what you’re getting into.

Is it difficult to obtain construction financing?

Because of the risk to the lender it can be difficult to get a construction loan. You will usually need impeccable credit and financial history to qualify, plus the usually considerable amount for a down payment.

How to get a construction loan

To get a construction loan, you’ll need:

  • The capital in place for the down payment (20-30% of the total cost of the build and/or purchase)
  • Have all your financial records prepared, including details of your current outgoings
  • Have an excellent credit score (spend some time improving it if possible)
  • Have detailed plans of the home so they know exactly how the money will be spent (be aware that the lender will get an independent appraisal of the project)
  • Make sure the builder you choose is reliable, experienced, and has a good reputation. The lender will want to know that the project is going to be well managed and have a high-quality finish

Apply for construction financing and compare multiple lenders

If you decide that a construction loan is the tool you need, make sure you compare all the lenders that appeal to you. Examine what they offer and how much the finance will cost.

A construction loan may be the perfect option for financing your building project but you will need to constantly oversee the construction to make sure that it goes as smoothly as possible and that both you and the lender are happy. Start comparing the best construction loans here and apply to the one that’s the best fit for you.

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