General Construction Loans To Grow Your Construction Company

Construction is one of the hardest industries to finance. Your cash is tied up in jobs you finished weeks ago, and costs land weeks before your invoices clear. Construction businesses often can't afford to wait for a slow lender.

I'm Bryan Gerson, co-founder of Clarify Capital, and I've arranged more than $900 million in financing for small and midsize businesses. Construction is one of the industries I work with most. Below, I cover the financing that fits an operating construction company, what it costs, and what lenders consider.

Financing option	Down payment	Typical term	Rate range	Best for
Construction-to-permanent loan	Typically 20%	Interest only during the build, then 15 to 30 years	About 7.19% to 7.42%	Building or buying your own shop or facility
Owner-builder loan	Higher than a standard construction loan	Interest only during the build, then 15 to 30 years	Higher than a standard construction loan	Licensed builders running the project themselves
Short-term business loan	None	6 to 36 months	APR starting at 6%	Fast cash for a bigger job, materials, or payroll
U.S. Small Business Administration (SBA) loan	10% or more on real estate projects	10 to 25 years	Starting at 6.75%	Long repayment on a large purchase or build
Business line of credit	None	Revolving, 6 to 36 months	APR starting at 6%	Covering gaps between draws and invoices
Home equity line of credit (HELOC)	None, your home equity stands in	Draw period up to 5 years, up to 30 years total	As low as prime	Owners with home equity

Construction Financing Options At a Glance

Here's a quick breakdown of some common construction financing options that I see owners reach for.

Construction-to-permanent loan

The first loan covers the build and then rolls into a long-term mortgage. Expect to have two closings.

Owner-builder loan

You act as your own general contractor. Lenders may view these loans as riskier. They'll want to see a license and a good track record.

Short-term business loan

It's a lump sum repaid on a set schedule. Approval typically leans on your revenue.

SBA loan

Long terms and low rates, backed by the U.S. Small Business Administration. Approval takes 30 to 90 days.

Business line of credit

A revolving line that you can draw from as costs pop up. You only pay interest on what you use.

Equipment financing

The equipment secures the financing, so a separate down payment usually isn't needed.

Clarify Capital offers business lines of credit, SBA loans, equipment financing, and short-term business loans. We don't originate construction-to-permanent or owner-builder mortgages. Those typically come from banks and mortgage lenders.

How Construction Financing Works

With construction loans, funds release on a draw schedule tied to build milestones. This means that you don't get the money all at once. You only pay interest on what you've drawn. The payment gets bigger as the project progresses.

Let's look at an example. On a $200,000 loan at 8%, with $50,000 drawn, you owe about $333 a month. At $100,000 drawn, you owe roughly $667. Once the full $200,000 is drawn, you owe $1,333. When the build is complete, the loan converts to a traditional mortgage. It can also be refinanced.

By comparison, a short-term loan or a line of credit lands in your account immediately, and you can spend it however the job requires. There's no draw schedule.

Online lenders like Clarify Capital can finance a short-term loan as fast as same day. SBA loans take 30 to 90 days for approval. Construction loans are usually financed through banks and can take 30 to 60 days to close.

Minimum Qualifications

$10,000 in monthly revenue

Your business must earn at least $10K per month in a business bank account.

500+ credit score

You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.

Minimum six months in business

Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.

Have a business bank account

Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.

Start Application

What Lenders Review

Construction loan lenders range across banks and credit unions, online lenders and marketplaces, and SBA lenders.

Requirements vary from lender to lender, but they tend to look at the same things on a loan application.

Credit score

Lenders look for strong credit, 670 or higher, for construction loans.

Down payment

The cash you've put into the loan and any equity you own in the business already.

Debt-to-income ratio

The total debt payments against your gross income. Usually capped at 43%.

Revenue and time in business

Lenders like to see consistent operating history and regular deposits in a business bank account.

Collateral

This secures the loan. Property, equipment, or receivables the lender can claim if you default.

Plans and appraisal

The blueprints, budget, and an appraiser's read on the project.

What Construction Financing Actually Costs

Let's break down what your construction costs actually look like.

Down payment. Expect to put down 15% to 35% of the total project cost on a standard commercial construction build.
Interest rates. Commercial construction loan rates typically run from 5% to 13%. SBA rates are negotiated with the lender and capped by the SBA.
Closing costs. These usually account for 2% to 5% of the loan amount. You pay at closing.
Extra fees. Build in some extra cash for appraisals, permits, inspections, and any origination fees.

The term length will also have an impact on your overall costs. Your monthly payment may be smaller if you pay the loan over a longer period of time, but you'll pay more interest on the loan. That's a trade-off worth considering.

Other Options Worth Considering

If you own a home, a home equity line of credit (HELOC) can finance equipment or an expansion.

A HELOC through Clarify Capital can reach up to $750,000. We have draw periods of five years and repayment up to 30 years. Approval can happen as quickly as one week.

The tradeoff with this type of financing is that your home secures the line. If your business can't make the payment, your home is at risk.

Here's what else is worth knowing.

Invoice factoring. You sell unpaid invoices for cash. Advance up to 100% of the invoice value.
Merchant cash advance. It's structured as a purchase of future receivables. Same-day financing, but an expensive option.
Business credit card. Fine to use for small purchases, but limits are too small for equipment. Rates tend to be high.

Finance Your Next Job

The best financing for your business is the one with a payment you can carry. Match the term to the project and compare the full cost, instead of just the interest rate.

If business financing is right for your business, Clarify Capital connects small and midsize businesses with 75+ vetted, reputable lenders through a single application.

Apply today in just two minutes to see what you qualify for. Checking your options won't impact your credit score.

Frequently Asked Questions

These are the most common questions I get about general construction loans.

What Are Construction Loans and How Do They Work?

A construction loan finances a building project. The difference between a construction loan and a short-term business loan is that the money is released on a draw schedule. As the work hits milestones, you pay interest on what's been drawn. When the build is finished, the loan converts to a mortgage. You can also refinance it.

Do You Have To Put 20% Down on a Construction Loan?

Most conventional construction loans want 15% to 35% of the total loan amount down. Business financing like a short-term loan or a line of credit doesn't require a down payment.

What's the Monthly Payment on a $200,000 Construction Loan?

During the build, you pay interest on only what you've drawn, so at 8%, that's about $333 per month on $50,000 drawn and about $1,333 once the full amount is drawn. A $200,000 balance at 7.5% over 30 years runs about $1,398 a month.

How Hard Is It To Get a Construction Loan?

Construction loans are harder to get than conventional mortgages. Lenders typically want strong credit scores, a solid down payment, a debt-to-income ratio at about 43%, and an approved contractor before they'll approve.

Is My Information Safe When I Apply?

Yes, Clarify Capital follows SOC 2 security principles, and your application is a soft credit inquiry. Checking your options won't impact your credit score.

Bryan Gerson

Co-founder, Clarify

Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →