Loans for New Construction Projects

Loans for new construction projects come in two broad families: project-secured construction loans that fund the build itself against the property and appraised value, and business financing that funds the company doing the building — its payroll, materials, mobilization, and gaps between draws. A traditional construction loan (bank, SBA 504/7(a), or a private construction lender) is the right tool when you own or are buying the land, have permits and a general contractor lined up, and can wait 30 to 90 days for underwriting and appraisal. But most contractors and small developers don't fail for lack of a construction loan — they fail in the cash-flow gap: material deposits due before the first draw, a subcontractor that needs to be paid this Friday, a change order the owner hasn't reimbursed yet, or a second job that starts before the first one closes out. For that gap, revenue-based financing approved on your bank deposits rather than the project pro forma can put working capital in the account in 24 to 48 hours, with a minimum around $10,000 and credit scores accepted from roughly 500 (FICO) up. This guide covers both — when each fits, what it costs in plain terms, and how to avoid the mistakes that sink a build's margin.

The two kinds of "construction loan" — and which one you actually need

People searching for a construction loan usually mean one of two very different things. Knowing which you need saves weeks.

1. A project construction loan (secured by the build)

This finances the vertical construction of a specific property. The lender underwrites the land value, the appraised as-completed value, your budget, your GC, and your permits. Money is released in draws tied to inspected milestones — foundation, framing, dry-in, and so on — not in a lump sum. Types include:

• Bank construction-to-permanent loans — one closing that converts to a mortgage at completion. Cheapest money, slowest and strictest.
• SBA 504 and 7(a) — for owner-occupied commercial construction; long terms, low rates, heavy paperwork, 60–90 day timelines.
• Private / hard-money construction loans — asset-based, faster (2–3 weeks), higher rate, common for spec homes and fix-and-flip ground-up.

2. Financing for the construction business (secured by revenue)

This funds the company, not the parcel. It covers the operating reality of running a build: deposits, mobilization, payroll between draws, fuel and equipment rental, and taking on the next job before the last one pays. Because it's underwritten on bank deposits and revenue rather than the property, it approves fast and doesn't tie up the project as collateral. This is where a revenue-based financing marketplace fits — and where most of the day-to-day pain in construction actually lives.

The two aren't competitors. A well-run builder often uses a construction loan for the build and a revenue-based line for the gaps around it.

How construction draw schedules create the cash-flow gap

Every project construction loan pays in arrears against completed, inspected work. That's prudent for the lender and brutal for the operator. You spend first, get inspected, then get reimbursed — often 2 to 4 weeks later.

The gaps show up in predictable places:

• Mobilization and deposits — material suppliers and specialty subs want money before a single draw is available.
• Between draws — payroll and rentals run weekly; draws land monthly. The math doesn't line up.
• Change orders — owner-requested changes get built now and reimbursed later, if the paperwork holds.
• Retainage — 5–10% of each draw is commonly held back until final completion, so even a "paid" job is partly unpaid for months.
• Overlapping jobs — the next contract starts before the current one closes out, doubling the working-capital need.

Contractors with real backlog and healthy margins still run short here, because construction is a business where you finance the client's project out of your own pocket until the draw clears. Working capital that arrives in a day or two — sized to deposits, not the property — is what keeps the crew on-site and the schedule intact.

Revenue-based financing for construction: how it works

Revenue-based financing (often structured as a merchant cash advance or a marketplace of them) advances a lump sum against your business's future revenue. Instead of a fixed monthly loan payment, you repay through a small, agreed slice of daily or weekly deposits, so the payback breathes with your cash flow — lighter on slow weeks, faster when draws land.

Why it suits construction operators specifically:

• Underwritten on bank deposits and revenue, not credit or the project. Typical minimums start around $10,000; FICO from roughly 500+ is workable because the deposits carry the decision.
• Speed. Approval commonly in 24–48 hours — fast enough to cover a Friday payroll or a material deposit that can't wait for a draw.
• No project lien. It doesn't encumber the parcel or complicate your construction loan's collateral position.
• Flexible use. Deposits, mobilization, fuel, rentals, bridging retainage — no draw-inspection gatekeeping on how you deploy it.

A marketplace matters here: one application is shopped to multiple funders, which improves the odds of an approval and a workable factor rate rather than betting the job on a single lender's box. It is financing, not a guarantee — no honest funder promises approval, and you should walk from anyone who does.

Decision framework: when each option fits — and when to avoid it

Match the tool to the job, not to whatever's fastest to get.

A project construction loan works best when

• You own or are purchasing the land and have permits, a GC, and a fixed budget.
• The timeline tolerates 30–90 days of underwriting and appraisal.
• You want the lowest cost of capital for the build itself and can carry deposits/mobilization on your own until the first draw.

Revenue-based financing works best when

• You have consistent business bank deposits (the stronger and steadier, the better the terms).
• You need money in days, not weeks — payroll, a supplier deposit, mobilization, or bridging the gap between draws or through retainage.
• Bank credit is slow, maxed, or your FICO is below conventional cutoffs but revenue is real.
• You're taking on a second job before the first pays out.

Avoid revenue-based financing when

• You need long-dated money to fund the entire vertical build — the repayment cadence is built for short cash-flow gaps, not a 12-month ground-up.
• Your deposits are thin or highly seasonal with no cushion; frequent remittance can squeeze an already tight account.
• You'd be stacking multiple advances to survive rather than to bridge a specific, revenue-backed gap. Stacking is a warning sign, not a strategy.

The honest rule: use construction loans to build the asset, use revenue-based capital to keep the business that builds it liquid. Don't force either tool to do the other's job.

Example: bridging a draw gap on a spec build

These figures are for example only and illustrate structure, not a quote. Actual amounts, factor rates, and terms depend on your deposits and the funder.

The point isn't the dollar amount — it's the shape. The builder spent nothing on the parcel's long-term financing, kept the schedule, and repaid out of the same revenue stream that the draw eventually fed. When the draw landed, the working-capital need dropped and so did the effective weekly outflow. See our working capital financing pillar for how this repayment style compares to fixed-term loans across seasons.

What it costs — in cash-flow terms, not APR games

Revenue-based financing is usually priced with a factor rate (a multiple on the advanced amount) rather than an interest rate, because repayment isn't a fixed schedule. The right way to evaluate it is in cash-flow terms: what slice of my weekly deposits leaves the account, and can the job absorb that until the draw or the sale closes?

Practical cost drivers:

• Deposit strength and consistency — steady, healthy revenue earns better factor rates. Erratic deposits cost more.
• Time in business — more history, better terms. Newer contractors can still qualify on strong recent deposits.
• Existing advances — prior open balances (stacking) tighten pricing or disqualify you.
• Term length — shorter paybacks generally carry a lower total cost of capital; longer ones ease weekly pressure but cost more overall.

Because pricing is bank-deposit-driven, the single best thing you can do before applying is run clean, high, consistent deposits through the business account for a few months. Underwriters read the statements first and everything else second.

How to apply and get funded fast

Speed comes from having the file ready. For revenue-based financing, underwriters typically want:

• 3–6 months of business bank statements (the core of the decision).
• A simple one-page application with ownership and business details.
• Basic entity documents (EIN, driver's license, voided check).
• Sometimes a look at open A/R or signed contracts, which can strengthen the offer.

A few things that protect your margin:

• Only borrow to a defined gap. Size the advance to the deposit, the payroll, or the mobilization you're bridging — not to a round number.
• Match the payback to the inflow. If a draw or sale is landing in weeks, a short term is usually cheaper and cleaner.
• Use a marketplace. One application shopped to multiple funders beats a single lender's yes/no and tends to surface a better factor rate.
• Read the remittance terms. Know the exact percentage and frequency coming out of deposits so it fits the account's rhythm.

For a straight construction loan, expect the opposite pace — appraisal, budget review, GC vetting, and draw-schedule negotiation. Line up both tracks early if the job needs the build financed and the business kept liquid.