Top 5 General Construction Loans: Grow Your Construction Company Today

What Are Construction Loans?

Construction loans are short-term loans designed to cover the costs of construction projects. Unlike traditional mortgages — which finance completed properties — construction loans provide funding while the project is still in progress. In this article, we are focusing on construction loans for construction companies.

How Construction Loans Work

A construction loan typically operates on a draw schedule, where funds are disbursed in phases as specific project milestones are completed. Borrowers usually make interest-only payments during the project, with repayment beginning after construction is finished.

Common Uses for Construction Loans

• Commercial construction. Funding for office buildings, retail spaces, warehouses, or industrial facilities.

• New construction. Financing for ground-up construction projects, including large-scale developments.

• Renovations and expansions. Loans to upgrade existing properties or add new structures to accommodate growing business needs.

• Equipment and materials. Cover costs for heavy machinery, building supplies, and other essentials.

Construction loans provide the flexibility and funding needed to keep projects on track while supporting business cash flow.

Types of Construction Loans

Understanding the different types of construction loans can help you find the right fit for your construction company.

Construction-to-Permanent Loans

These loans start as short-term construction loans and convert to long-term financing once the project is complete. This strategy is ideal for businesses building commercial real estate they plan to own and operate long-term.

Owner-Builder Loans

For general contractors acting as their own builders, owner-builder loans provide funding tailored to this specific model. Lenders require a proven track record of successful projects to approve this loan type.

Short-Term Loans

Short-term construction loans are designed for projects with quick turnaround times or limited scope. They usually carry higher interest rates but offer the speed and flexibility construction companies need to maintain momentum.

SBA Loans

The Small Business Administration offers loans like the SBA 7(a) and 504 programs, which are excellent for small construction companies. These loans can fund everything from commercial builds to equipment purchases, often with lower interest rates and favorable repayment terms.

Lines of Credit

A line of credit offers revolving access to funds, making it a flexible choice for construction companies managing multiple projects or fluctuating costs. Business owners can draw what they need and repay as cash flow allows.

Key Factors to Consider Before Applying

Before applying for a construction loan, it’s important to understand what lenders look for and how to position your construction company for success.

Creditworthiness

A strong credit score and solid business credit history are critical for securing a loan. Your creditworthiness determines eligibility, loan amount, and interest rates.

Down Payment Requirements

Most lenders require a down payment of 20–30%, ensuring borrowers are financially committed to the project. Prepare to show how you’ll cover this upfront cost.

Debt-to-Income Ratio

Lenders will evaluate your company’s debt-to-income ratio to ensure you can manage loan repayment along with existing financial obligations.

Loan Amounts and Interest Rates

Construction loan amounts vary based on project size and scope, while interest rates depend on the lender, loan type, and your financial profile. Short-term loans often come with higher interest rates, while SBA loans offer more affordable options.

By understanding these factors, you can strengthen your loan application and secure more favorable terms.

Top Construction Loan Lenders

Selecting the right lender is key to finding the best construction loan for your business. Here are some top options to consider:

Traditional Banks

Banks like Wells Fargo and Bank of America provide competitive loan programs for well-established construction companies. While they offer low interest rates, the application process can be lengthy, and requirements are often strict.

Credit Unions

Credit unions are known for lower interest rates and flexible terms, making them an excellent choice for small construction companies. Their member-focused approach can be a major advantage.

Online Lenders

For fast approvals and less paperwork, online lenders like Clarify Capital cater to construction companies that need quick access to funds. These lenders are especially helpful for borrowers with non-traditional credit profiles.

SBA Loan Providers

SBA-approved lenders offer programs tailored to small businesses in the construction industry. The SBA 7(a) loan is ideal for funding large projects, while the 504 loan is better suited for real estate and equipment financing.

By evaluating lenders based on their rates, terms, and application process, you can find the best construction loan for your needs.

Loan Process Overview

The construction loan application process requires preparation and documentation. Knowing what to expect can help you secure funding more efficiently.

Pre-Approval

Pre-approval helps you determine your eligibility and the loan amount you qualify for. During this step, lenders review your credit score, business credit, and financial history.

Loan Application

The loan application requires detailed documentation, including:

• Business financial statements and tax returns

• Construction project plans and cost estimates

• Proof of creditworthiness and a solid track record

Closing Costs

Lenders charge closing costs such as origination fees, appraisals, and legal expenses. These costs are typically included in the final loan amount.

Funding Disbursement

Funds are usually released in phases — called a draw schedule — as your construction project progresses. Some lenders may offer a lump sum for smaller projects.

Being prepared at each stage can help you navigate the loan process with confidence.

FAQs About Construction Loans

Addressing common questions can help clarify how construction loans work and what to expect.

Who Qualifies for a Construction Loan?

Construction companies with good credit, a strong track record, and detailed project plans are more likely to qualify.

What Are the Typical Interest Rates?

Interest rates vary by lender and loan type. Short-term loans often have higher interest rates, while SBA loans and credit unions may offer lower rates.

How Do Repayment Terms Work?

During construction, companies usually pay interest only. Once the project is complete, repayment terms begin with regular monthly payments or a permanent mortgage structure.

Can I Refinance a Construction Loan?

Yes. Refinancing can help you secure better rates or transition to long-term financing after your project is finished.

What’s the Difference Between a Construction Loan and a Traditional Mortgage?

Construction loans finance building projects, while a traditional mortgage is for purchasing completed properties. Construction-to-permanent loans can combine both phases.

Build Your Success With the Right Construction Loan

The right construction loan can help your business grow, whether you’re taking on new projects, managing multiple sites, or upgrading existing property. With options like SBA loans, lines of credit, and short-term financing, there’s a solution to meet every construction company’s needs.

At Clarify Capital, we’re here to help you find the best financing options for your construction company. Contact us today to secure the funding you need to succeed in the construction industry.