SBA Loans for Construction Companies: What Builders Need to Know

Are you a contractor, builder, or construction business owner looking for better financing options? This article breaks down:

• Whether construction companies qualify for SBA loans
• What credit score and financial history you’ll need
• Which SBA loan types work best for contractors (7(a), 504, and more)
• Advantages of SBA loans vs. traditional lines of credit
• Eligibility requirements and step-by-step guidance to apply

Anyone who does general contracting, oversees specialty trades, or offers site development knows how capital-intensive the business can be. Delays, cash-flow swings, equipment needs, bonding requirements, and seasonality make financing a constant challenge. If you’re ready to stabilize cash flow, buy new equipment, or expand your operations, the right financing solution may help you build smarter and grow stronger.

One powerful tool that many builders overlook is the SBA-backed loan. In this post, we’ll walk you through the key questions, pitfalls, and strategies for leveraging SBA loans in the construction world.

Can construction companies even qualify for an SBA loan?

Construction businesses may be able to qualify for SBA loans, but there are extra scrutiny and unique requirements because of the risk profile inherent in construction. Some key things to watch:

• SBA SOP and construction rules: The SBA’s Standard Operating Procedure (SOP 50 10 8) governs how construction loans can be underwritten. In June 2025, updated rules reduced some waiver thresholds (e.g., performance bond waivers now apply for smaller loans) and clarified documentation flexibility for construction projects. 
• Risk assessment: Lenders will expect you to show proven experience in construction (past contracts, backlog, references) rather than speculative new projects. 
• Project documentation: For construction-related funding, you’ll need full plans, specs, cost breakdowns, construction timeline, contractor info, permitting, insurance coverage (builder’s risk, workers’ comp) and change-order policies. 
• Bonding / performance / payment bonds: Depending on the project size, lenders or the SBA may require bonds or waive them below certain thresholds. The 2025 update lowered the waiver threshold from $500,000 to $350,000, so more loans may now require formal bonds. 
• Interim financing / draw schedules / fund control: Unlike a simple term loan, construction loans often require controlled disbursements tied to project milestones, inspections, lien releases, etc. 

So while many construction firms do get SBA loans, you’ll need to demonstrate that you can manage the complexity and risk that come with construction projects.

What credit score or financial history do I need?

The SBA itself does not set a rigid universal “credit score floor”, but reliable lenders review your financial status during the application process. Your lender will likely expect to see a healthy pattern of sound decision-making when it comes to how you spend money and repay debts. 

Strong personal and business credit history: Many aim for FICO 650–700+ (or the lender’s internal equivalent).

Clean payment history: You must have no recent judgments, bankruptcies, unresolved liens.

Time in business/track record: This often means 2+ years of profitable operations (though in some cases, startups or newer firms can qualify if backed by strong collateral or sponsors).

Debt service capacity/cash flow: Your business must show it can comfortably repay the loan from cash flows, with a reasonable debt service coverage ratio (DSCR).

Equity injection/owner investment: Lenders expect that you (the owner) have skin in the game, especially for project risk.

Collateral/guarantees: For many SBA 7(a) loans over certain thresholds, collateral is required; personal guarantees are typically mandatory for 20%+ owners. 

Because construction firms often have lumpy revenue, lenders will most likely examine your historical ROI, gross margins, backlog, and liquidity in addition to credit.

Which SBA loan type is best for contractors — 7(a), 504, or something else?

There’s no one-size-fits-all answer; which SBA product “fits” depends heavily on what you’re using the funds for, and the scale of your plans.

See SBA’s official 504 program page (for full rules).

Hybrid approach: Many construction firms use a 7(a) loan for working capital, phased draws, and a 504 for property acquisition or long-term facility expansion.

Are there any advantages of SBA 7(a) loans for construction companies?

There are several advantages that make the 7(a) program appealing, especially when used strategically in construction. However, each advantage comes with trade-offs (cost of guarantee, variable interest, stricter underwriting) which you need to weigh.

1. Flexibility in use of proceeds

The 7(a) is one of the most flexible SBA instruments. You can use it for working capital, payroll, materials, equipment, or even renovation/leasehold improvements. 

2. Quicker turnaround (relative to 504)

Because it generally involves fewer parties (direct through banks or SBA lenders), approval and funding may be faster than the dual-lender 504 structure.

3. Access to bridge / interim capital

In construction, you may need capital before you qualify for full-term property financing. Funding from an SBA 7(a) loan may be able to function as a bridge.

4. Refinancing options

You can generally  refinance existing construction debt or credit lines into a 7(a) to lower rates or extend terms.

5. Lower up-front investment

Because uses are broad and you may not need heavy down payments or land collateral, you may be able to preserve liquidity.

What disqualifies you from getting an SBA loan?

Always check both SBA eligibility rules (e.g. in the 7(a) terms & eligibility guide) and your specific lender’s overlays (which may be stricter). Even with good standing, some red flags can disqualify or hinder approval:

• • Ineligible business activities: SBA excludes certain industries (e.g. speculative real estate, gambling, investment companies).
  • Poor credit / unresolved judgments or bankruptcies: Negative credit history is a strong barrier.
  • Lack of ability to repay: This includes insufficient cash flow, negative projections, poor DSCR.

  • Insufficient owner equity or unwillingness to invest personally: Lenders want to see that owners have a financial stake in the business and are sharing the risk.

  • Existing delinquencies on government or SBA loans: This signals a history of financial mismanagement and increased lending risk.
  • Incomplete or weak documentation: This could include missing financial statements, tax returns, project plans, or permits.
  • Conflict of interest, or legal/licensing issues: License suspensions and compliance violations can further complicate things.

7 ways to use an SBA loan for your construction company

1. Working capital stabilization

Construction companies often face uneven cash flow due to delayed payments, seasonal slowdowns, or extended billing cycles. An SBA loan may provide the working capital needed to cover payroll, materials, and overhead when revenue dips. By stabilizing cash flow, you can keep projects moving, maintain strong relationships with vendors, and take on new jobs without relying on high-interest credit or sacrificing financial flexibility.

2. Equipment purchase or lease buyouts

Owning up-to-date equipment is vital to staying competitive in construction. SBA loans may be able to  help you purchase new machinery or buy out costly leases, reducing monthly expenses and improving productivity. Upgraded equipment increases job-site efficiency, enhances safety, and allows you to bid confidently on larger or more specialized projects that require reliable, modern tools.

3. Renovation/alteration/tenant improvements

Your shop, warehouse, or office is the backbone of your operations, and an SBA loan may help you renovate or customize it to meet your needs. Funds can go toward structural improvements, energy-efficient upgrades, or tenant buildouts that enhance workflow and client presentation. A functional, professional space boosts both productivity and credibility with clients and partners.

4. Land acquisition

For construction companies, owning your property can provide stability and long-term savings compared to leasing. Through an SBA 504 loan, you can purchase land or develop facilities like staging yards or offices with fixed rates and long repayment terms. Owning your property also builds equity, gives you control over your workspace, and positions your business for future expansion.

5. Refinancing high-interest debt

If your business relies on short-term credit or high-interest loans, refinancing through an SBA loan may help lower your monthly payments and simplify debt management. Consolidating multiple debts into one manageable, fixed-rate loan frees up cash for growth initiatives like hiring or new bids. It’s a practical way to strengthen your balance sheet and stabilize operations.

6. Project startup capital

Most construction jobs require upfront spending long before invoices are paid. SBA loans can fund early-stage costs like bringing on new hires, purchasing materials, and getting permits, giving you the liquidity to start projects without stress. With capital in place, you may confidently take on larger contracts, meet milestones faster, and keep your crews moving without interruptions.

7. Acquisition of another construction firm

If you’re ready to grow through acquisition, SBA financing can help make it possible. You can use funds to purchase another construction business, acquire their equipment, or take over existing client relationships. This strategy helps you expand capacity, diversify services, and enter new markets with manageable payments and minimal upfront costs.

Getting an SBA loan vs getting a line of credit

Both SBA loans and business lines of credit may help construction companies manage cash flow and growth — but they serve different purposes. Understanding which option fits your needs depends on how you plan to use the funds and how predictable your financing needs are.

An SBA loan is ideal for long-term investments or larger, one-time expenses. These loans typically offer lower interest rates, longer repayment terms, and fixed monthly payments that make budgeting easier. Because SBA loans are fully underwritten, they require detailed documentation and a longer approval process. The payoff is stability and predictability over time. Contractors often use SBA loans for buying property, financing major equipment, or refinancing existing debt.

A business line of credit, on the other hand, functions more like a flexible safety net. It’s revolving credit that you can draw from as needed and repay as cash flow allows. Lines of credit are particularly useful for short-term expenses or working capital between projects, such as covering payroll or materials while waiting for client payments. However, interest rates tend to be higher, and payments can fluctuate depending on how much you draw.

Here’s a quick comparison:

SBA Loan: These are best for long-term investments, major purchases, or refinancing because they offer fixed payments and lower rates.

Line of Credit: A line of credit is best for short-term cash flow needs, flexible access to funds, and quick turnaround times, however, the higher interest rates add up quickly if you don’t have cash held back to repay the borrowed amount in a very short time frame (usually 30 days).

Combination Approach: Many contractors use both an SBA loan for big-picture growth and a line of credit for small purchases that are a part of their day-to-day operations.

The SBA loan offers a firm foundation (a solid, structured source of funding) while the line of credit is more of a scaffolding (giving you flexibility to reach new heights when short-term cash gaps appear).

Steps to get an SBA loan for your construction business

Considering an SBA construction company loan? Here are the steps you should take to get an SBA loan for your construction business.

1. Assess your need & use case

Define exactly what you need (equipment, working capital, property, acquisition) and the dollar amount.

Gather documentation for:

• Personal & business tax returns (3+ years)
• Financial statements (balance sheet, P&L)
• Cash flow projections
• Business plan or project plan (for construction jobs)
• Permits, contracts, specs, schedules
• Collateral info, appraisals
• Licensing, insurance, and bonding records

2. Review & clean up your financials

Pay down high-interest debt, resolve judgments, improve liquidity, strengthen margins.

3. Choose the right SBA product & lender

Decide between a 7(a), 504, or hybrid loan scenario. SmartBiz Bank is a lender experienced in construction and SBA projects. Our team can help you find the right funding for your business.

4. Underwriting due diligence

Complete your SBA forms (e.g. SBA Form 1919, personal financial statements, etc.) and the lender will review your finances, project documents, team, collateral, risk. You may need to revise budgets or provide additional info.

5. Loan approval & closing

Once approved, you’ll sign loan docs, fulfill conditions (insurance, bonds, lender requirements) and schedule disbursements.

6.  Fund specific project execution

If it's a construction project, funds often flow by milestones after inspections, lien waivers, and cost verification.

7. Repayment & oversight

Make payments on schedule, monitor any covenant requirements, maintain records, communicate changes or delays with the lender.

SmartBiz can help you fund what’s next

When you’re running a construction company, managing cash flow, payroll, and growth projects shouldn’t mean juggling endless paperwork or waiting months for approval. SmartBiz Bank streamlines the SBA loan process so you can get back to building instead of chasing funding. 

Let us do the heavy lifting so you can focus on the details of your next build.

Our online platform helps you pre-qualify in minutes and secure affordable financing designed for your business needs — whether that’s stabilizing cash flow, buying new equipment, or expanding operations. With personalized support and transparent guidance at every step, SmartBiz makes getting an SBA loan as stress-free as possible.