Construction Loans

Significant Growth Expected in the US Construction Industry

The US construction industry is poised for steady, albeit modest, growth, driven by many factors. According to the American Institute of Architects (AIA), construction spending on nonresidential buildings is expected to grow by 2.2%. Institutional facilities like healthcare and education are projected to see increases of up to 6%, underscoring the sector’s resilience despite economic headwinds. Economic growth and community expansion are fueling demand in the construction sector, as more businesses seek facilities that can support their evolving needs—whether that means tenant improvements or building a new warehouse from the ground up.

An essential component supporting this growth is access to financing, particularly through the SBA 504 loan program. These loans provide long-term, fixed-rate funding of up to $15 million with 50% from a lender, 40% (up to $5.5 million) from a Certified Development Company (CDC), and at least 10% from the borrower are ideal for purchasing or modernizing major assets like buildings, equipment, and facilities. Businesses that want to build or customize their business’ commercial real estate often turn to SBA 504 loans to support their growth, helping them to take on new projects while also driving job creations and economic development. For example, businesses can use these loans to finance the construction of manufacturing plants, data centers, and neighborhood healthcare facilities, aligning with emerging industry needs and fostering job creation.

With more entrepreneurs entering the market daily and new business ventures on the rise, the economic outlook for small businesses remains bright. The SBA 504 loans serve as a trusted lifeline, enabling small to mid-sized companies to scale without the financial burden of higher market interest rates. These loans not only promote growth but also empower communities by strengthening local economies.

Challenges Companies face with Construction

Despite challenges like labor shortages and inflation, accessible financing continues to create meaningful opportunities for small businesses looking to upgrade or build their facility with a construction loan. With the support of SBA 504 loans, small business owners can break ground on new facilities, upgrade existing spaces, and position themselves for long-term growth in a resilient and essential sector of the U.S. economy.

Navigating construction financing as a business owner can feel overwhelming, but understanding how construction loans work can help ease the process. The right loan can provide the funds you need to grow your business, purchase large fixed equipment, or boost cash flow during slower seasons. Among the many options, SBA loans stand out as a reliable choice for construction businesses looking for long-term financing solutions.

What Is a Construction Loan?

A construction business loan is specifically designed to cover expenses associated with construction, large fixed equipment and sometimes land acquisition. These loans are short-term and issued in stages as the work progresses, unlike traditional business loans. Often, construction loans transition to permanent long term financing when the project has been completed and are used for a variety of projects, including new buildings, renovations, and infrastructure development.

What Are SBA Loans and Why Are They a Good Fit for Businesses with Construction needs?

The Small Business Administration (SBA) offers loans designed to help small businesses succeed. While the SBA itself doesn’t lend money, it partners with lenders to provide guarantees that minimize risks. This gives small businesses access to funding they might not qualify for otherwise.

The two most popular SBA loan programs for business construction loans are the 504 Loan Program and the 7(a) Loan Program. SBA 504 Loans are ideal if you need to finance major purchases like equipment or real estate – and for a long time. If you’re planning to expand your facilities or buy essential machinery, this program offers long repayment terms and competitive interest rates. SBA 7(a) Loans, on the other hand, are better suited for broader purposes. You can use these loans for working capital, purchasing inventory, or refinancing existing debt. The flexibility of 7(a) loans makes them a versatile solution for many construction companies.

How to Get a Construction Loan

Getting a construction loan starts with a clear understanding of your project. Before you apply, make sure you know exactly what you’re building or improving, how much it will cost, and what financing you’ll need to bring it to life. Lenders will expect to see detailed project plans, property information, contractor bids, permits, and a breakdown of how the funds will be used. Without a clear scope and budget, it’s difficult to communicate your needs to a potential lending partner. You’ll also need a solid business plan that outlines your timeline, construction goals, and how the project will support your business’s growth. Be sure to gather financial documents like tax returns, balance sheets, and cash flow statements—and check whether you meet SBA loan requirements. Once you’re prepared, reach out to an SBA Preferred Lender or a Certified Development Company (CDC) to take the next step.

The Benefits of Choosing SBA Construction Loans

SBA loans offer several advantages that make them particularly appealing to businesses seeking construction financing. Competitive interest rates ensure you aren’t overwhelmed by repayments, keeping your cash flow manageable. With longer repayment terms, you can spread out payments over 10 to 25 years, depending on the loan type.

Another major benefit is the lower down payment requirements. Compared to traditional loans, SBA loans usually require less upfront capital, freeing up your resources for other needs. Lastly, the flexibility in use means you can adapt the funding to your business’s specific situation, whether that’s buying a new crane with an SBA 504 loan or ensuring your team’s salaries are covered with a SBA 7(a) loan.

How to Qualify and Apply for an SBA Construction Loan

Meeting the eligibility criteria is your first step toward securing an SBA loan. Most programs require you to demonstrate that your business operates within the U.S. and qualifies as a “small business” based on revenue and employee numbers. You’ll also need a strong credit history, proof of business revenue, and a solid plan for how you’ll use the loan.

Preparing a complete and well-organized loan package is essential when seeking construction financing. Lenders will require a full financial picture, including recent tax returns, detailed financial statements, and a well-structured business plan that outlines your goals and growth strategy. Transparency around your cash flow, assets, and liabilities builds credibility and helps lenders assess your ability to manage repayment. For construction projects, it’s especially important to provide a clear scope of work, cost estimates, architectural plans, contractor credentials, and a realistic timeline. These details demonstrate that your project is well thought out and financially viable. A complete, organized loan package not only builds lender confidence—it can also speed up the approval process and improve your chances of securing the right financing.

Qualifying for a 504 construction business loan starts with understanding the loan’s purpose and ensuring your business fits the eligibility criteria. These loans are designed to help small businesses grow by financing major fixed assets like property, equipment, or new construction.

To qualify, your construction business must operate as a for-profit entity in the United States and meet the Small Business Administration (SBA) size standards. Generally, this means your business should have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes over the past two years. Additionally, you will need to use the loan proceeds for approved purposes directly tied to your business operations.

Preparation is key when applying for a 504 loan. Start by gathering essential documents, which commonly include:

• Recent financial statements and tax returns for your business
• A detailed project cost breakdown
• Lease agreements or property deeds
• Personal financial statements and tax returns for business owners with a 20% or greater stake in the company
• An environmental impact report (if applicable)

A well-crafted business plan is critical. It demonstrates to lenders how your project will drive growth and ensure repayment. Include a clear executive summary, your business goals, current financial health, and projected performance. Make sure to detail how the construction or expansion will contribute to your success. If you’re adding equipment or space, explain the impact on your operations and revenue.

By presenting clear documentation and a strong, cohesive plan, you signal to lenders that you’re prepared and capable of managing the financing effectively. These steps don’t just increase your chances of approval; they also set the foundation for your business’s growth and success.

How Do SBA 504 Construction Loans Work?

The SBA 504 construction loan is ideal for businesses looking to expand or improve facilities. It involves three parties: a Certified Development Company (CDC) financing up to 40%, a commercial lender covering 50%, and the borrower providing a minimum of 10% as a down payment. What makes this loan attractive are its long-term, fixed interest rates, perfect for large-scale projects.

What Can SBA Construction Loans Be Used For?

Construction loans serve a wide range of purposes. They can fund land purchases, pay for labor and materials, provide working capital during extended projects, upgrade office spaces, or add infrastructure to support business growth. When combined with SBA loans, these flexible options allow businesses to customize the terms and loan amounts they need.

What Are the Eligibility Requirements for SBA Construction Loans?

Eligibility criteria for SBA construction business loans are straightforward. Your business must operate for profit, meet the SBA’s definition of a small business, and show the ability to repay the loan with proper documentation. Additionally, the loan must be used for an eligible purpose, such as construction or renovations. Certain businesses, like nonprofits or speculative real estate developers, are not eligible under SBA guidelines.

Understanding SBA Loan Terms and Limits

SBA 504 loans offer fixed interest rates with terms of 10, 20, or 25 years. For SBA 7(a) construction loans, repayment can extend up to 25 years on real estate and construction projects. Loan amounts vary, with 504 construction loans reaching up to $15 million between the lender (50% LTV) and the CDC (40% LTV), while 7(a) construction loans cap at $5 million. Getting pre-approved by a lender before applying for a 504 loan can boost your likelihood of success and simplify the loan process.

SBA Preferred Lenders are financial institutions authorized to approve loans directly. Working with one of these lenders can speed up the process and provide valuable expertise in SBA loan programs.

When choosing a lender, focus on their experience with SBA programs. Look for flexibility to meet your business’s needs and consider their reputation by researching reviews or recommendations from other business owners. Many contractors and project managers have experience working with lenders during construction and may be able to recommend financing partners who understand the complexities of business construction loans.

Key Stats on the SBA 504 Loan Program

The SBA 504 loan program has been instrumental in creating over 2 million jobs. These loans can fund projects up to $15 million, with the government—through a Certified Development Company (CDC)—guaranteeing 40% or up to $5.5 million of the total loan amount. Terms of 10, 20, or 25 years are available, and the competitive interest rates make this a cost-effective financing option for small businesses

An SBA loan for construction is typically used for real estate, major renovations and minor improvements, or fixed heavy equipment. It may also offer options for equipment financing or real estate loans for land and property.

SBA loans bring several advantages, such as lower interest rates, flexible repayment terms up to 25 years, minimal down payments as low as 10%, and government guarantees that reduce lender risks to encourage lending to small business owners.

Why Partnering with the Right Lender Matters

Finding the right financial institution to process your SBA loan application plays a key role in your success. Look for lenders experienced with SBA programs and providing businesses with construction loans. They can provide guidance tailored to your industry, ensuring you get the loan type and terms that align with your goals.

One of the best ways to set yourself up for financial success is to anticipate challenges and plan accordingly. Building relationships with lenders before you need funding can make the process much smoother. Additionally, monitoring cash flow regularly will help you predict when you might need extra resources.

By understanding how SBA loans work and preparing your application carefully, you position your business for growth. Whether you need to stabilize operations, upgrade equipment, or expand into new markets, having access to tailored financing creates a solid foundation for long-term success.

Securing the right loan doesn’t have to be complicated. With the clarity SBA loans provide, businesses seeking construction financing can achieve big goals without unnecessary financial stress. Focus on your projects and leave the financing worries behind—with the right loan, growth becomes achievable and sustainable.

Your Growth Partner – First Bank of the Lake

The friendly financial experts at First Bank of the Lake offer SBA loans designed with the needs of our customers in mind. We financed more than $500 million in SBA loans over the past 12 months and are ranked as the 15th largest SBA lender in the United States in 2024. Since our founding in October 1985, we have offered outstanding customer service and the best financial options for their needs. Today, First Bank of the Lake offers loans for business enterprises across the United States. To learn more about our bank or to apply for an SBA loan, visit our website or check us out on Facebook or LinkedIn. Our friendly and knowledgeable staff members will be happy to discuss your loan options with you and to help you achieve the highest degree of success in your chosen industry. Please contact us at (888) 828-5689 to get your business loan questions answered today!

Helpful Links

• How to Buy a Franchise
• Restaurant Loans
• Dental Practice Loans
• Veterinarian Practice Loans
• Spa Loans and Funding