Last Updated on February 13, 2020

Business loans in the construction industry – things to consider


The construction industry is the third-largest employment industry in Australia. With just over 1.1 million people employed, they come a close third behind health care and social assistance, and the retail trade.

The construction industry covers almost 9.5% of total employment in Australia, and it’s still growing.

Even though the opportunities in the construction industry are vast, there are some drawbacks. Cash flow can be strained due to seasonal fluctuations, and customers may take a long time to pay invoices.

Construction company expenses can also mount up, including buying and maintaining equipment, purchasing material and payroll.

The lack of working capital in these times can make it challenging to start a new project. This is where business finance can be beneficial.

While traditional bank loans are available, they typically require to be secured with an asset. Some people may not be comfortable mixing business and personal and securing a loan with their home as this is a big step to take.

This is why other options are needed when it comes to small business loans. If you’re ready to compare business loans, our free service lets you compare loans from over 70 lenders—both big and small. You can get approval in as little as 24 hours, apply for any amount between 5K and 20M, and receive funds straight into your account once approved.

Here’s a quick guide on some of the types of business loans available for the construction industry and how they can be used.

What types of finance are available?

With little to no profit, or proof of profit, it can be hard to acquire finance. The two main finance options available are debt and equity.

  1. Debt financing involves borrowing money from a financial institution. The business takes on the debt and it must be repaid (typically with interest added) in a specific period.
  2. Equity financing is typically used by non-established businesses that may have trouble securing business loans through debt financing. This may be due to insufficient cash flow, lack of assets, or less experience in the business sector.

In equity financing the business receives funds in return for a share of the company.

Examples of debt financing

  1. Traditional loans from large financial institutions, This includes traditional lenders like banks or credit unions that offer loans to people starting and growing small businesses. A detailed business plan is usually required to get approval for a traditional loan, and you may need to offer an asset for security of the loan.
  2. Loans from online and alternative business lenders, The amount of business or investors offering loans has increased in the last few years. You can now apply for a business loan and receive the funds quickly, sometimes within 24 hours.

They may not give loans as large as traditional financial institutions, but it is something to look into. Always read all the terms and conditions to ensure you know the exact interest rate and any fees that apply.

The business finance options that are available to compare:

A business line of credit

A business line of credit approves you for a particular credit limit that you can use as and when needed. It’s a little different from a standard business loan which gives you a set amount of money upfront.

You can access the credit as and when you wish, and you are only responsible for paying back what you use, plus any fees stated by the lender. Interest is only charged on the amount that is used, not the entire amount approved.

It functions more like a credit card than a traditional business loan but generally offers lower rates than standard credit cards. If your financial needs fluctuate a line of credit can give you fast and flexible access to business funding.

Invoice financing

Invoice financing companies purchase outstanding invoices for a large percentage of their total value while keeping a small sum of payment for themselves.

This can be a good option when you can’t wait weeks for clients to pay your invoices and need the cash flow sooner.

Click here to read our in-depth guide on invoice financing.

Business credit card

These work similarly to personal credit cards, but you can add multiple cardholders, and it is only used for business purchases.

Business credit cards can help you meet immediate cash flow needs and often generate benefits from reward programs. An interest-free period is usually offered, but after this, the interest rates can be high.

Equipment finance

There are many equipment finance options to help you purchase or lease the equipment needed for the business. These include commercial loans, equipment hire purchases and finance leases, so you’ll need to research to decide which is right for your business.

These loans sometimes have a maximum loan amount of $30,000. Anything higher might require business owners to provide the details of their trading history.

Click here to read more about equipment financing.

Business Overdraft

You can apply for a business overdraft on your business banking account to allow you to overdraw to a certain limit. Fees often apply.

Withdrawals can be made when the account is empty, but it all needs to be repaid, and interest is charged on the amount of credit used.

A business overdraft offers flexibility in your cash flow and can be useful for businesses with temporary or seasonal workers. It allows you to pay your employees even if you’re waiting on payments from clients.

Unsecured or secured term loans

This is simply a set amount of money borrowed from a bank or other financial institution which you must repay over an agreed period. It either comes with a fixed or variable interest rate and a set date when the loan will be paid off.

The term loan is one of the most common forms of credit.

Always read the fine print of the loan before applying and accepting a loan for your construction business. Ensure the terms and conditions realistically fit with your financial situation.

Factors to consider

Irrespective of the size of your construction business, there is often a need to free up working capital in order to take on more clients, secure more job sites, and grow your business.

However, before taking on a business loan it’s essential that you evaluate the various options available to you to ensure you can meet all repayments and that the loan fulfils all requirements.

Here are a few key factors to keep in mind when deciding on the right business finance option for your construction business.

Flexibility – Some loans offer more flexibility than others, but this flexibility can come with a price. Make sure to research any fees before committing to a finance option; there may be a cost associated with early termination or paying back more than agreed in a month.

Understanding the needs of the business and knowing what is important to you can help when it comes to choosing a finance option. If the option to repay early is important to you, an option that doesn’t penalise you for this may be a better option than one with a lower interest rate over a longer-term.

Speed of funding – Having quick access to funds can make or break a once in a lifetime opportunity that comes along. Traditional loans from larger banks take a lot of time with formalities and paperwork, which increases the time it takes to receive your funds.

Biz Loan Comparison compares lenders and can have the funds in your account in as little as 24 hours.

Eligibility requirements – Different lenders will look at different aspects of your profile when assessing your eligibility for a small business loan. The loan type you’re applying for will also play a role.

But generally speaking, the following factors are usually assessed:

  1. Your credit score and history
  2. Any collateral
  3. Whether you have any current debts
  4. Your business age
  5. Cash flow and income
  6. Which Industry you are in

Read over the eligibility terms to see that you can meet the requirements.

Terms and conditions – Review the repayment terms to ensure you are able to match the payment schedule to pay off the loan over the agreed period. Reading through the terms and conditions will let you know exactly what you’re signing up for.

Interest rate – A higher interest rate means you’ll pay back more money in the end. Decide whether you want the stability of a fixed interest rate or the possible savings that could come with a variable interest rate.

The full cost of a business loan

Consider these three factors to ensure you know, and are comfortable with, the total cost of the loan:

The loan amount: A larger loan will mean larger repayments.

The interest rate: Calculate the total repayment, including the interest.

Any applicable fees or charges: Read the terms and conditions of the loan to be aware of any upfront or ongoing costs.

Fees to look out for

  1. One-off fees like application fees
  2. Exit fees
  3. Early termination fees
  4. Ongoing fees like service fees or annual fees

Biz Loan Comparison can help you secure the right loan by taking your unique business needs into account and allowing you to compare loans from some of the best lenders currently on the market.

Seeing industry-leading loans side by side in our easy-to-use comparison tool helps you choose the best one for you: the loan that fits right into your business vision. Click here if you’re ready to compare today.

Still have questions? Let’s talk

Confused? Not sure if this applies to your situation? Phone us on 1300 190 429 for some free, no obligation advice.

Or want to compare business loans now?

About the Author

Eleanor Baxter
Eleanor Baxter

Eleanor Baxter has extensive experience writing for the Australian financial and healthcare sectors. Her portfolio includes guides that cover all aspects of both physical and financial health and wellbeing. Coming from a background in communications, fitness, and psychology, she has found a passion for demystifying personal and business finance for the everyday reader. When not at her writing desk, you’ll find Ellie walking her two dogs or practising an asana.

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