Business Loan for Construction Company

Jon Maloney explains business loans for construction companies.

What type of business loan would a construction company need? How does construction finance work and what can it be used for?

Construction companies typically come to us seeking a business loan for anything from stock and materials to plants and machinery.

Construction companies are often struggling to get paid on time. I feel for them – there’s a saying that builders are unpaid money lenders, because they carry out work at their own expense and don’t get any interest while they’re waiting to be paid. So cash flow, working capital and stock materials are typically things that we find construction companies need.

Of course, you’ve also got the other angle, with big civil engineering companies who work with plant and machinery hire companies. They’ll use things like leasing and asset finance. That isn’t with us, by the way, we’re obviously just focused on business loans. But those organisations tend to sort of go for equipment leasing and hire purchase to fund large equipment.

What are the eligibility requirements for a construction business loan and how is income assessed?

You need to have been trading for over 12 months, be UK based and receive the majority of your income from UK work. You also need to demonstrate that you can afford the loan.

Let’s say, for instance, you turn over half a million pounds and you’re applying for £400,000 on a business loan. That’s not going to happen – you’re asking to borrow almost the entire turnover.

Some people won’t understand why they’re not eligible for £400,000 – they might only be eligible for £50,000. So eligibility goes hand in hand with realism.

You also need not to have adverse credit, which means missed payments on other loans, mortgage payments, leasing, HP, van finance or car finance. Then, it all comes down to affordability.

What is the usual range for construction business loan amounts?

We go from £10,000 to £500,000 but with construction I would say the average is around £50,000 to £75,000. The majority of the loans we do are for cash flow and working capital.

Can both small and large companies apply for construction finance with you?

Yes, absolutely. We work with everyone from a small local plasterer up to a large brickworks, or civil engineering contractor. They might turn over £10 million or £20 million. Above that probably is outside our remit.

So if you’re a small, one man band you can get a business loan, and if you’re a large, national firm we can help you as well.

What is the repayment term for a construction business loan?

It’s typically six months to five years. Again the majority of the work that we fund is between 12 months and two years.

Are there any reasons why I may be declined a business loan as a construction company? Are there any solutions?

Bad credit can go against you, but there are different levels of that. You may worry that missing a couple of credit card payments could mean you have bad credit – but that might not prevent you from applying.

However, somebody who consistently fails to pay their obligations, whether that be loans or with HMRC will find it more of a challenge. We’ve seen companies in the past that have not paid staff on time, or have CCJs that are unsatisfied. If CCJs are satisfied we can look at it.

But if there’s a trend – somebody’s got five CCJs, even if they’re all settled we will be asking a lot of questions. Bad credit is a broad brush, but if you are not meeting your obligations to other loan providers, it’s probably not going to be one for us. But while the odd missed payment could make you slightly higher risk, it won’t mean you can’t get a loan.

What other reasons might somebody be declined for a construction business loan?

Previously failed companies or companies that are in liquidation may be declined. In the past we’ve come across somebody applying for finance as ABC Plastering Limited but they’ve just had another company, EFG Plastering Limited that went into administration – and hasn’t paid any of its debts. It’s got outstanding loans and debt with HMRC. So if there’s any adverse history as it’s called, you probably won’t get that loan.

The construction industry sometimes bears the brunt of an economic downturn. There may be challenges in how regularly those trades get paid. If they’re on 90 day payment terms or even longer, income coming into the bank to service monthly payments might not be there.

But I wouldn’t say they’re any higher risk than any other industry.

How can I apply for a construction business loan? What is the process?

The easiest way to do it is on our website – you can first check your eligibility and you’re then taken automatically to the Apply Now page. The form is simple and takes two minutes to fill out. Once we’re in receipt of that you’ll gain a dedicated account manager, who will be in touch within five or ten minutes of you making the application.

We’d ask for the last six months’ business bank statements and a full set of year end accounts. Then it goes into our internal underwriting team. We make an informed decision as to what we can offer you. If you’re happy with the figures, it goes to a formal sign off from one of our lenders. Then funds can be in your account the following day – so it is very simple.