As a contractor, you’re well aware that operating a company requires capital—of many sorts. Fortunately, based on your company’s specific requirements, the best small business loans for contractors offer you with a variety of alternatives for obtaining various kinds of financing.
You may need money to fund the acquisition of particular products, address cash flow issues, or pay your employees. Alternatively, you may need general, flexible operating cash to enable you to do all of these things and more. The many kinds of contractor company loans may assist with these issues in both simple and innovative methods. (And keep in mind that you don’t have to be in financial difficulty to get funding—many smart company owners use finance to take their businesses to the next level.)
We’ll go through the many business loan choices for contractors, assist you in determining which is the best match for you, and go over some extra information you should know before completing your application.
The Best Contractor Business Loans
There are many different kinds of small business loans for contractors, and the ideal one for you will rely on your capital requirements as well as your creditworthiness. We’ll look at these financing alternatives for contractors, which have a wide range of applications:
*Loan from the Small Business Administration
*Loan for a certain period of time
*Line of credit for businesses
*-Credit card for business
*Finance for equipment
Here, we’ll go through all of your choices so you can decide which is best for you. You’ll want to consider how soon you’ll need the money, how flexible you want the loan to be, how much collateral you’re prepared to put up, and how long you’ll have to pay it back.
SBA 7(a) Loan is the best working capital loan for contractors.
SBA loans should be your first port of call if you require general operating cash to cover a wide range of expenditures. SBA 7(a) loans, in particular, are the most popular of all SBA loans.
Due to their lengthy payback terms and low interest rates, these loans are the most desired of all small company loans—they’re as competitive as it gets. Lenders, most of whom are small banks, have their loans guaranteed up to 85% by the US Small Business Administration, ensuring that they are covered for a substantial part of the loan if the borrower fails. That is why they are able to provide such low prices.
You may get up to several million dollars in capital with an SBA loan. What’s the catch? Because these loans are so competitive, they are only given to the most creditworthy applicants. You may be eligible for these loans if you’ve been in company for at least a few years, have solid revenues (profitability isn’t required), and a good credit history.
It’s essential to remember that SBA loans aren’t a fast way to get money. These loans need a lot of documentation and may take months to be approved. They’re well worth it if you have the patience to wait and the qualifications to be accepted.
Term Loan is the best SBA loan option for contractors.
Is an SBA loan a bit out of reach for you? Or you just can’t wait so long to obtain your working capital? That’s completely reasonable; many company owners have been in your shoes.
In such scenario, a term loan may be a good option. They’re similar to SBA 7(a) loans in that you’re given a lump sum of money and a certain amount of time to pay it back, but lenders don’t have as stringent credit requirements. Yes, this may imply higher interest rates, but if you need a lump-sum, “conventional” business loan quickly, a term loan may be a good choice.
Business Line of Credit is the best contractor loan for supplemental purchases.
A contractor’s best buddy is a company line of credit.
This kind of small business loan allows you to “draw” from a sum for which you have been approved by a lender, but you only pay interest on the amount you use. It’s like a cross between a conventional loan and a credit card cash advance. You may keep drawing on your authorized line of credit, and after you’ve paid it off, most of these loans are “revolving,” which means they’ll re-open and you’ll be able to use them again.
These loans are ideal for little expenditures and cash flow problems, as well as when you need to respond to an emergency and need immediate cash. Similarly, if you have a business opportunity that you need to take advantage of and need to obtain money fast, a business line of credit may help.
You may be able to get a company line of credit approved fast.
Business Credit Card is the best contractor loan for everyday expenses.
You may be shocked to learn that a business credit card can be a very useful tool. If you need to make a quick purchase, you’re probably aware that a company credit card is the best option.
But did you know about business credit cards with 0% intro APR? These cards provide an initial period of no interest for a certain length of time—usually a year or more. That implies you may use them as a 0% “loan” to fund your purchases. The greatest thing is that you can budget to pay off your items over time without incurring additional interest. (Just remember to pay it off before the normal interest period begins.)
Another significant benefit of using a business credit card is that you will be establishing your company’s credit history if you pay in full and on time. And the better your credit history, the more contractor business loan choices you’ll have in the road, including the possibility of an SBA loan.
Equipment Financing is the best loan for contractors looking to finance their equipment.
You may be a good candidate for an equipment loan if you simply want to finance equipment—anything from heavy gear to computers.
You get a quotation for the equipment you want to buy with this kind of contractor loan, and if you’re accepted, a lender will finance a substantial part of the cost. This makes huge purchases much more accessible, allowing you to buy things that you previously believed were beyond of reach.
Although equipment financing isn’t as flexible as other types of working capital loans, one advantage is that it usually doesn’t need collateral since the equipment you’re financing acts as security. This may be a huge assistance in securing funding and giving you piece of mind, especially if you’re just getting started with your contracting company.
Invoice Financing is the best contractor loan for cash flow.
Finally, cash flow is a typical issue that many contractors face. Having a healthy cash flow margin is critical to the success of your company, and having outstanding bills that aren’t paid may be a concern. You may not be able to pay your employees, buy the materials you’ll need to start your next project, and so on.
When you use invoice financing, a lender will advance you a large part of the outstanding invoice (typically 85 percent), and when your customer pays you and you pass on the cash, the lender will give you the remaining 15 percent minus costs. No, invoice financing isn’t cheap, but for many companies, large and small, the costs are well worth it in the long run to be able to continue doing business as normal. What’s worse is losing whole teams or jobs because you don’t have the cash flow to fund them.
When it comes to getting a small business loan, there are four things to keep in mind.
Let’s go over a few more things now that you know about the finest small business loans for contractors. First and foremost, you want to make sure you’re giving a lender the most accurate picture of your finances feasible.
Determine how much money you’ll ask for and make sure you don’t ask for too much.
Just because you have access to a small company loan doesn’t mean you should take out more than you require—or, more importantly, than you can afford. If you ask for the amount of money you need and know you can pay back, you’ll actually increase your chances of being approved, since your lender will be able to tell if you can afford what you’re borrowing based on your financial documents. Don’t get off to a bad start!
Be aware of your loan’s restrictions and expenses.
As previously said, some loans are more flexible than others, while some are quicker and less costly. For speed and flexibility, you’ll have to pay a price. Before you sign off on a loan, double-check that you understand all of the charges, including the APR and factor fee.
If you run a seasonal contracting company, you need take extra precautions.
Seasonal workers must understand how their off-season funds seem to a lender. If you show a prospective lender bank statements from the off-season that are lower due to seasonality, you’re not giving them the greatest image of your business—and they may believe you can’t pay back a loan.
Although it may seem counterintuitive given that you will have the most money in the bank, you should apply for a loan at the end of your peak season so you can demonstrate to a lender how strong your business has been over the previous several months and get the cash you need to get through the low season.
Don’t take out several loans.
Stop if you already have a loan. You don’t want to fall into the trap of “stacking loans,” which is taking out several loans at once. This is permitted in a few instances (for example, combining a business line of credit with a term loan), but it is entirely up to the original lender with whom you signed. You risk defaulting on your first loan if you stack loans against their guidelines. Before taking out a new loan, check with your current lender.
Other Things to Consider Before Applying for a Business Loan
A lot of paperwork is required when applying for a loan. Different kinds of paperwork are required for different types of loans, so check with your lender to see what you’ll need. However, to make the application process go as smoothly as possible, you’ll need to collect a few business and financial papers ahead of time.
*Your most recent bank statements for three to four months
*Your profit and loss statement and balance sheet
*Articles and business licenses
*Your credit rating
*Several years’ worth of recent company tax returns
Lenders will let you know if any extra information is required—and it almost definitely will if you’re looking for an SBA loan—but gathering some information ahead of time will demonstrate that you’re ready to get started and will help you avoid delays if you’re short on funds.
Contractors Trying to Find the Best Business Loan
Sure, navigating the world of contractor small business loans may be a bit nerve-wracking. Hopefully, though, you’ll be happy to find the wide range of choices available to meet your company’s requirements. Remember, you don’t have to be in a bad financial situation to apply for a loan. You may discover that the loan you take out might assist you deal with any urgent issues while also opening opportunities to future success.