# Construction business loans

Source: https://businessloanbroker.ai/industries/construction/
Site: BusinessLoanBroker.ai (powered by Levr)

> Contractors fund equipment, materials and payroll through equipment financing, lines of credit and factoring. What lenders need, including a WIP schedule.

Construction companies get funded most often through [equipment financing](https://businessloanbroker.ai/business-loans/equipment-financing/) for machines and trucks, a [line of credit](https://businessloanbroker.ai/business-loans/line-of-credit/) for materials and payroll between draws, and [invoice factoring](https://businessloanbroker.ai/business-loans/invoice-factoring/) for slow paying general contractors. Banks fund established contractors but want a work in progress schedule and clean job margins. Progress billing, retainage and pay when paid clauses make construction harder to underwrite than most trades.

## Key facts
- **Typical amounts:** $25,000 to $500,000 for lines, equipment to $1 million per unit
- **Products that fit:** Equipment financing, lines of credit, invoice factoring, SBA 7(a) and 504
- **Usually decline:** Unsecured term loans for subcontractors, factoring on residential work
- **Documents asked for:** WIP schedule, backlog, A/R and A/P aging, license, insurance, bonding letter
- **Typical minimums:** 2 years for banks, 1 year and $25,000 a month in deposits for online lenders

## Which loans work best for construction?

Equipment financing works best for excavators, skid steers, lifts and trucks, because construction equipment holds its value and the lender holds the asset. A line of credit works best for the 60 to 90 day gap between buying materials and getting paid on a draw. Factoring works for subcontractors whose general contractors pay slowly, though not every factor accepts construction because of lien rights and retainage.

- Equipment: 3 to 7 years, 0% to 20% down, 7% to 20% APR, used accepted.
- Lines of credit: $25,000 to $1 million, 8% to 30% APR.
- Factoring: 80% to 90% advances at 1.5% to 4% per 30 days.
For buying a yard or shop, [SBA 504](https://businessloanbroker.ai/business-loans/sba-504-loans/) is the usual answer.

## What do lenders like and dislike about construction?

Lenders like contractors with a backlog of signed contracts, a bonding line (a surety has already underwritten you), hard equipment collateral, and a mix of commercial, public and residential work. They like current job costing, because that is how they know whether you make money on each job.

They dislike lumpy revenue, retainage of 5% to 10% held for months, pay when paid clauses, and concentration where one general contractor is more than a third of revenue. Because contractors can look profitable on cash while jobs are underwater, most banks will not lend without a work in progress schedule, and many online lenders simply price construction higher.

## How much can a construction business borrow?

Equipment lenders fund the invoice, typically $20,000 to $500,000 per machine and higher for cranes. Bank lines are usually sized at 70% to 80% of eligible receivables under 90 days, and factoring is sized the same way per invoice. Online working capital lenders typically advance 50% to 100% of one month of deposits. SBA 7(a) can reach $5 million for an acquisition or a shop, sized by historical cash flow rather than backlog. A contractor billing $2 million a year with clean margins can typically carry $200,000 to $400,000 of total debt. Check coverage with the [DSCR calculator](https://businessloanbroker.ai/tools/dscr-calculator/) before asking for more.

## What documents will you be asked for?

Beyond bank statements and tax returns, construction lenders ask for documents other industries never hear about:

- A work in progress schedule with contract value, costs to date, billings to date and estimated cost to complete for each open job
- A backlog or contract list with remaining value
- Receivable and payable agings, with retainage shown separately
- Contractor license, liability and workers compensation certificates
- A bonding capacity letter from your surety if you bond work
- An equipment list with any existing liens
Equipment lenders mostly need the quote and bank statements. Factors need the contract, invoice and pay application. See the [document checklist](https://businessloanbroker.ai/guides/document-checklist/).

## What are the common uses of funds?

Construction money typically goes to five things.

- Equipment: a $120,000 used excavator financed over five years to stop renting at $6,000 a month.
- Materials for a large job: a $150,000 line draw to buy lumber and fixtures before the first pay application.
- Payroll between draws: factoring $80,000 of approved pay applications so crews are paid on time.
- Work trucks: see [commercial vehicle loans](https://businessloanbroker.ai/business-loans/commercial-vehicle-loans/).
- Buying a shop or yard: an SBA 504 loan with 10% down and a 25 year term.
Bonding capacity is not a loan, but a stronger balance sheet from a term loan can raise it.

## What usually gets a construction application declined?

The most common bank decline is a missing or unreliable work in progress schedule, followed by job losses that show up as underbillings and a shrinking gross margin. Online lenders decline on statements that swing from large deposits to negative balances between draws, on open tax liens, and on existing advances. Factoring companies decline when the general contractor has weak credit, the contract has a pay when paid clause, or lien rights have been waived. An expired license, lapsed insurance and more than 40% of revenue from one customer are also common. Read [why loans get denied](https://businessloanbroker.ai/guides/why-loans-get-denied/) for the fastest fixes.

## How to apply

Apply once here with your statements, your equipment quote or open invoices, and your contract list, and your application reaches equipment, line of credit, factoring and SBA lenders at the same time. If you would rather not fill forms, connect your AI assistant to our MCP server through the [agents hub](https://businessloanbroker.ai/agents/) and it can read your financials and WIP schedule, complete the application and submit it. It is free to the business, and lenders pay us only when a loan funds.

| Product | Amounts | Typical cost | Speed | Best for |
|---|---|---|---|---|
| Equipment financing | $20,000 to $1M per unit | 7% to 20% APR | 2 to 7 days | Excavators, lifts, trucks |
| Line of credit | $25,000 to $1M | 8% to 30% APR | Days to weeks | Materials and payroll between draws |
| Invoice factoring | Sized to approved pay apps | 1.5% to 4% per 30 days | 2 to 5 days | Slow paying general contractors |
| SBA 7(a) or 504 | $150,000 to $5M | Prime plus 3% to 6.5% | 30 to 90 days | Shops, yards, acquisitions |

## Questions and answers
**Can a subcontractor get a loan if the general contractor pays slowly?**

Yes. That is what construction factoring and lines of credit exist for. A factor advances 80% to 90% of an approved pay application within days and collects from the general contractor. A bank line does the same at lower cost, but only for contractors with two or more years of clean financials and a current WIP schedule.

**What is a WIP schedule and why do lenders insist on it?**

A work in progress schedule lists every open job with its contract value, costs so far, billings so far and the estimated cost to finish. It shows whether you are over or under billed and whether each job is still profitable. Lenders insist on it because cash in the bank can look healthy while jobs lose money.

**Can I finance used construction equipment?**

Yes. Most equipment lenders fund used machines, usually up to ten to fifteen years old, including private party sales with an inspection and a bill of sale. Terms are shorter on older iron, often three to five years, and the rate is a little higher than on new equipment from a dealer.

**Will a bonding line help me get a loan?**

It helps. A surety has already reviewed your financials, so a bank treats a bonding letter as a positive signal. The reverse is also true: lenders know a surety usually has priority on contract funds for bonded jobs, so they may exclude bonded receivables from your borrowing base.

## Related
- [Equipment financing](https://businessloanbroker.ai/business-loans/equipment-financing/)
- [Business lines of credit](https://businessloanbroker.ai/business-loans/line-of-credit/)
- [Invoice factoring](https://businessloanbroker.ai/business-loans/invoice-factoring/)
- [SBA 504 loans](https://businessloanbroker.ai/business-loans/sba-504-loans/)
- [Covering a cash flow gap](https://businessloanbroker.ai/situations/cash-flow-gap/)
- [DSCR explained: the cash flow test lenders use](https://businessloanbroker.ai/guides/dscr-explained/)

## Apply
Apply for the business: https://apply.businessloanbroker.ai/signup?utm_source=direct&utm_medium=organic&utm_content=md-construction
MCP server for AI agents: https://mcp.businessloanbroker.ai/mcp (docs: https://businessloanbroker.ai/agents/mcp/)