How to Get a Construction Loan With Bad Credit: What You Need to Know to Improve Your Chances

Expense Management
8 min
Nov 16, 2022

No one is perfect. And you shouldn’t have to be.

Construction loans can be a hassle if you have good credit, but they can be downright torture if you have a few dings in your credit history.

Conventional lenders expect you to have a high credit score and they want to base your business financing on your personal history. How is that fair?

If you need a loan to build your next project, and maybe your credit while you’re at it, you have options for getting the money you need.

This guide gives you what you need to know, as well as a better alternative, to find a construction loan for your less-than-perfect credit.

Flexbase: Making Credit Available to Construction Companies With Two Credit Options

You already have a million things to do and a business to run. The last thing you want to do is spend time begging lenders for money for your business when all they want to do is use your personal finances to determine whether your business is worth the risk.

Your business has potential. You deserve financing that reflects that.

Flexbase understands how construction financing works and helps people like you secure the funds they need to build a better tomorrow.

You need tools to do your job and Flexbase is a powerful tool for construction accounting and financing.

Flexbase can help your business in many different ways:

  • Gain working capital with Flexbase Capital
  • Flexbase cards to get quick money and track spending
  • Automated paperwork and compliance
  • Intelligent reminders and legal notices
  • Help you get paid faster with discounts
  • Improved customer communication
  • Account integration that puts everything in one place

Flexbase is ONE tool that can meet all of your construction accounting and financing needs. No more dealing with multiple accounts and different programs. It’s all in one place with Flexbase.

Part of successfully budgeting a construction project is knowing how much you can afford and how to secure the funding you need for your next project.

Flexbase sees your business potential and offers financing solutions that meet your needs.

Don’t get caught off guard by limited credit options. Let Flexbase finance your next project.

What Is Required to Secure a Construction Loan?

Probably the most common means of getting new construction loans for bad credit is to put up property as collateral.

If you are building on land you own, this can provide the lender with something to make them feel more confident about loaning you money.

The downside to offering up your land is that you could lose it if you default on the loan. But this is why it can help you secure the financing you need; the lender isn’t the only one taking a risk.

There are other types of collateral that you can use for a secure loan, such as:

  • Cash
  • Invoices
  • Investments
  • Other real estate
  • Inventory/Equipment
  • Materials
  • Property
  • Tools
  • Business equipment
  • Construction equipment

Secured loans are just one option available. But if you don’t have enough collateral to appease the lender, you may still need to look at other options.

What Is the Minimum Credit Score for a Construction Loan?

Your credit score is supposed to be a reflection of your financial responsibility. It doesn’t define you, but it is often used to judge you.

For most types of loans, anything lower than a 680 is considered bad credit.

Construction loan applicants generally need a score higher than this or they may face rejection or ridiculously high rates. Knowing your score ahead of time can prepare you for the obstacles you may face.

If you don’t already know your score, you can use a free service that offers an estimate or pay for a service that will monitor your score regularly.

Some credit card accounts offer monitoring services as a benefit for account holders.

Why Bad Credit Affects Your Chances to Get a Construction Loan

There’s nothing like having a banker who sits in a cushy office decide that you don’t deserve financing because of a few past mistakes.

Unfortunately, all it takes is a bad year or a few late payments to really hurt your credit score.

Lenders look at your credit history and income to determine whether or not they are willing to loan you money. They may decide that your financial past is too risky to proceed with a loan application.

Things that hurt your credit score, and your chances of getting a loan, include:

  • Late payments
  • Bankruptcies
  • Foreclosures
  • Too many new accounts
  • Too many open accounts
  • High credit utilization ratio

At the end of the day, banks and credit unions want to feel confident they will get their money back.

Your credit history is what tells them how you have handled debt in the past so they can determine whether to loan you money today.

Types of Construction Loans

When it comes to construction loans, one size does not fit all. You can open up your options by looking at different types of loans, including:

  • Construction-to-permanent loans
  • Construction-only loans
  • Renovation construction loans

Knowing the purpose of the project and what will happen after the build is complete is crucial to figuring out which type of loan is right for you.

8 Tips for How to Qualify for a Construction Loan With Bad Credit

If you already know your credit is less than stellar, but still need that loan, there are a few things you can do to get financed.

While you could choose to do a lot of extra work and research, just know there are better, easier options available that can save you time and money.

Flexbase makes financing your next project fast and easy. Unlike banks or credit unions, they believe your personal credit score shouldn’t determine your business potential.

If you do decide to go the conventional route, you’ll need to arm yourself with knowledge so you don’t fall victim to high interest or difficult terms that take advantage of your position.

#1: Understand Credit and How to Improve Your Credit Score

The first step to improving your credit score is to know what you are working with. If you have recently applied for a loan, you should receive your score from the lender.

If you haven’t checked your credit in at least a year, you are eligible to get your report for free from the top three reporting agencies:

  • Equifax
  • Experian
  • TransUnion

Make sure that you read over it carefully to see if there are any mistakes. You can report discrepancies and have them removed from your credit report, possibly gaining yourself a few more precious points.

#2: Consider Your Options

You are a problem-solver so you know there is usually more than one way to get something done.

Construction financing is no different.

Consider these options when choosing the best path forward:

  • Improve your credit score
  • Put down more money for a down payment
  • Get a secured loan
  • Find a cosigner
  • Wait for your score to improve

#3: Consider Debt-to-Income Ratio

If your credit cards are maxed out and you’re already in a lot of debt, it’s probably harming your ability to get approved.

Lenders will look at your debt-to-income ratio to help determine if you are reliable enough to pay back a loan.

They want to know how much money you make and how much you owe. Then the lender can determine if they think you make enough money to make the required payments.

#4: Account for Extra Income

Since how much you make plays a big part in knowing how much you can pay, lenders need to know about all possible income.

This can work in your favor and show you have a lower debt-to-income ratio.

Carefully review your finances and application to ensure all of your income is being reported to give yourself the best possible chance at approval.

#5: Recruit a Cosigner

If you know you have the money to pay the loan but lack collateral, or have a really low score, you may have more success using a cosigner.

A cosigner is someone who offers good credit to guarantee a loan for you.

The lender will take their credit, income, and debt and factor those in when processing your loan application.

The cosigner shares equal responsibility to repay the loan and their credit may be affected if you default.

Finding someone you trust, who also trusts you, can be difficult but may improve your chances of obtaining a new construction or home building loan with bad credit.

#6: Do Research

This is not the time to just go with what you know.

Research financing options and get creative about what type of loan you can get to start building.

Look into the lenders you are considering and find options that work for you.

Not every loan is created equal. Ask about terms and conditions before signing on the dotted line.

#7: Be Proactive

If you know your credit history and have a recent score, you can take charge to improve your credit.

Paying down credit cards or other loans can improve your score and make you look better to lenders. You can also offer a large down payment, usually 20% or more for bad credit, to show the bank you have the cash to complete the job and make the payments.

Start working to raise your credit score before you need the loan so you stand a better chance of securing funds without paying sky-high interest.

#8: Be Patient

Your best option may be to give it time.

Once you have addressed the issues that are holding you back from getting a loan, you will need to wait to let your credit score reflect the improvements.

While waiting may put a crimp in your project plans, it may offer you a lower interest rate or more financing options than rushing to take the first loan available.

Making Construction Finances Possible With Viable Credit Options From Flexbase

You don’t have to be at the mercy of the banks or predatory lenders.

Flexbase provides finance options that keep your business moving without putting your dreams on hold.

Whether you need a loan to start your next big project or working capital to grow your business, Flexbase has options that meet your unique needs.

Where banks or other lenders might not recognize the potential in your business, Flexbase understands and values construction companies and contractors and will work with you to get the job done and get you paid.

Faster. Easier. Better. Let Flexbase be your secret weapon.


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8 min
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