When you’re in business, it changes how you look at every financial option. There are additional opportunities for banking, accounting, and even loans. Some of these options are right for your business, but you need to consider both your personal options and the options available to your business before making a decision.
Most people know the ins and outs of getting a personal loan. The lender reviews your credit history, financial information, and looks at your income history to determine your creditworthiness. The lender then determines the amount you qualify for – usually up to $50,000 – the interest rate, and repayment period. This is often a viable option when you want to build or remodel property.
Rates for construction loans are usually variable – they change daily based on average national rates. Your credit rating and other factors can also impact the interest rate you’re able to get. Unfortunately, construction loans carry greater risks than mortgages for lenders because they aren’t backed by the home as collateral.
These loans are also short-term, and you’ll need to provide a building schedule to the lender. You’ll need to follow this schedule, and the lender usually also follows a schedule to make payments as your home is built in stages. Often, you can refinance the loan into a traditional mortgage after your construction company finishes the work.
You can get a personal loan so that you can pay a general contractor for your business construction. However, that may or may not be the best option for your business.
Getting a business construction loan may be a little different, however. Instead of providing the lender with your personal financial information, you’ll use the business’s books. This means that you need to make sure your accounting is in order before applying for a business construction loan.
Businesses can build credit just like individuals, so the lender will look at your company’s credit history along with income, debt, and other financial information. If you haven’t started building credit for your business, the lender may also want to look at your personal credit history and financial information. While that may not be ideal, loans – even construction loans – can help build your company’s credit to help with future loans.
In some cases, a small business construction loan is in only the business name. This means that if something happens to the business and you cannot repay the loan through it, you are not personally responsible for repaying the loan. This makes a business loan preferable for many small business owners. While the hope is always that the business continues to succeed and grow, there is always the possibility that outside factors like the economy, new technology, or new trends can affect sales.
There are many things to consider when deciding between a business construction loan and a personal construction loan. The SBA can often help you look at all of the options, and an experienced construction company like Buildrite Construction can also help you sort through your options and make the best decision for both your business and you.
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