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SBA 7(a) Loans for Builders and Construction Companies
If you’re interested in expanding a construction company that you currently own, acquiring an existing construction business, or buying out a partner, the SBA 7(a) loan could be exactly what you need.
If you’re interested in expanding a construction company that you currently own, acquiring an existing construction business, or even buying out a partner in your construction firm, an SBA loan like the SBA 7(a) loan may be able to help.
SBA 7(a) Loans for Builders and Construction Firms
Construction companies can use SBA 7(a) loans for purposes including:
Buying Construction Equipment
SBA 7(a) loans can be used for equipment purchase with terms of up to 10 years.
Buying Out a Business Partner
If one or more of the partners in your construction business wants to move or retire, and you want to buy them out, an SBA 7(a) loan could provide the financing you need.
Building a New Office or Headquarters
While it’s more common for construction companies to be building structures for their clients instead of themselves, many larger firms will eventually need a place of their own to call home. Fortunately, the 7(a) loan program can be used for owner-occupied commercial real estate financing, with loan terms of up to 25 years.
Consolidating Eligible Business Debt
Refinancing your construction company’s debt could free up a lot of cash flow for your business— and a 7(a) loan could be a good way to do it. Despite that, not all debt can be refinanced under the SBA 7(a) program— only debt that was originally used to purchase goods that would eligible for 7(a) financing in the first place.
Acquiring a Competitor
If you’d like to purchase another construction company to acquire their clients, reduce local competition (or both), than you may also be able to do so with an SBA 7(a) loan.
Working Capital
SBA 7(a) loans can also be used to fund working capital. This could include anything from paying utility bills to employee salaries.
Case Study: Building Better in Texas
Ted, an experienced contractor, had been running his construction company, Lubbock Builders, in Lubbock, Texas, for over a decade. His company specialized in residential and commercial construction projects, including new home builds, remodeling, and large-scale commercial developments. With a reputation for quality work and excellent customer service, Lubbock Builders had become a well-respected name in the local construction industry.
As demand for his services continued to grow, Ted saw an opportunity to expand his business by investing in new equipment, hiring additional skilled workers, and taking on larger, more complex projects. He estimated that he would need $300,000 in additional funding to support this expansion.
Ted decided to apply for an SBA 7(a) loan, as it offered competitive interest rates, long repayment terms, and the flexibility to use the funds for various business purposes, including purchasing equipment and hiring employees. He prepared a comprehensive business plan, detailing his growth strategy, financial projections, and an analysis of the construction market in Lubbock.
Ted approached a local bank experienced in working with small businesses and submitted his loan application. The lender carefully reviewed his business plan and financials, recognizing the potential for Lubbock Builders to grow and meet the increasing demand for construction services in the area.
The lender approved Ted's SBA 7(a) loan application, granting him the $300,000 he needed to expand his construction business. With the additional funding, Ted was able to purchase new equipment, hire more skilled workers, and take on larger projects, further cementing Lubbock Builders' position as a leading construction company in the region.
Ted's vision for his company's growth was realized, thanks in part to the support of the SBA 7(a) loan program.
This is a fictional case study provided for illustrative purposes.
Related Questions
What are the eligibility requirements for SBA 7(a) loans for builders and construction companies?
The eligibility requirements for SBA 7(a) loans for builders and construction companies are as follows:
- The business must be a small business according to the SBA's definition, which is fewer than 500 employees for manufacturing and mining industries, and under $7.5 million in average annual receipts for non-manufacturing industries.
- The business must be in an eligible industry, which can be found here.
What are the advantages of SBA 7(a) loans for builders and construction companies?
SBA 7(a) loans offer many advantages for builders and construction companies, including flexibility in underwriting, often lower interest rates than other comparable financing options, long loan terms of up to 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory, and flexible collateral requirements. Additionally, lenders are prohibited from charging certain fees, including insurance service fees, add-on interest charges, legal service fees (with some exceptions), and broker referral fees.
For more information, please see SBA 7(a) Loans for Builders and Construction Companies and SBA 7(a) Loans for Small Businesses.
What are the disadvantages of SBA 7(a) loans for builders and construction companies?
SBA 7(a) loan disadvantages for builders and construction companies include:
- Lengthy approval times (for standard SBA 7(a) loans)
- Lots of documentation
- Collateral is often required
- Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
- High credit scores are typically required (typically 680+)
- May be restrictions on supplemental/additional financing
Source: www.sba7a.loans/sba-7a-loans-small-business-blog/pros-and-cons
What are the maximum loan amounts for SBA 7(a) loans for builders and construction companies?
The maximum loan amount for the SBA 7(a) is $5 million, and there is no minimum. For builders and construction companies, the loan maturity is 25 years.
Here is a look at the SBA 7(a) loan terms:
SBA 7(a) Loan Interest Rates Loan Amount Maturity of less than 7 years Maturity of more than 7 years $25,000 or less Base rate + 4.25% Base rate + 4.75% $25,001 to $50,000 Base rate + 3.25% Base rate + 3.75% $50,001 and up Base rate + 2.25% Base rate + 2.75% *Current prime rate is 8% as of May 2023. Here is a look at the SBA 7(a) loan amounts:
SBA 7(a) Loan Amounts Minimum No minimum, but commonly no less than $30,000 Maximum $5 million Here is a look at the SBA 7(a) loan maturity:
SBA 7(a) Loan Maturity Loan Type Maturity (years) Real estate loans 25 Equipment 10 Working capital or inventory 10 Other 25 What are the repayment terms for SBA 7(a) loans for builders and construction companies?
The repayment terms for SBA 7(a) loans for builders and construction companies are up to 25 years. This is according to the SBA 7(a) Loan for Land or Real Estate page on the SBA7a.loans website.