Business Loans
for Plumber

If you’re already in business, it’s easier to get funding. Data from last year’s income and expenses helps you predict cash flows and possible cash flow gaps. Past customer behavior can also help you forecast how an expansion could impact your sales revenues.

Existing business owners also have a financial history to include in a loan application. You could pledge assets as collateral, such as parts, vans, or a physical store. Assuming you’re profitable, borrowing as an existing business owner is easier.

Even an unprofitable business can borrow if it has enough cash receipts and a business plan that clearly shows its path to profitability. But if you’ve struggled with cash flow and been in the read a few months, your best option is to find an alternative lender who understands your business. 

Small business owners looking to start a new business will have different funding needs. You would have to locate a building, obtain the necessary permits, and possibly invest in inventory. A lender could ask you to pledge personal assets – such as investment or retirement accounts – to secure the loan. 

The stage you’re at in the business cycle will often help you decide how much to borrow and which lenders to approach.

If you have been working as a plumber already, you will already have your licenses and certifications. You could only need to borrow the money for a basic set of tools, pipes, and fittings. If you are starting small, you can buy necessary supplies as needed and invoice the customer. Once you grow, however, you might want to invest in a fully-stocked van. It will save you time, and increase your profit margins if you do not have to make multiple trips to a hardware store. There are also licenses involved in starting a new business, and you will have to engage a lawyer to set up your legal entity.

If you’re not yet licensed, requirements vary by state, but you will likely have to complete an extensive apprenticeship and take several exams before becoming a licensed plumber or electrician. You won’t be eligible to take out a business loan until you’ve actually set up shop, and should apply for educational loans instead. 

Maybe you need access to funds for working capital needs – to make payroll or pay rent during a slow period. In this situation, a line of credit works best. Similar to a credit card, a line of credit often has lower rates and stays open for a small fee. You can draw on the funds and repay them as needed.

Knowing why you need to borrow can direct you to the right lender.

Can your business’s cash flows pay your monthly loan payment and your other expenses? Add up your fixed expenses – like rent, utilities, and payroll – and calculate the amount of free cash flow. If it’s not enough to cover a loan payment, you shouldn’t borrow (or you should borrow less).

A loan payment consists of a portion of the amount borrowed spread over the repayment term, with interest added on at the loan’s interest rate. Therefore, borrowing less reduces your monthly payments since it would reduce the base on your loan payment. Ask your lender what your estimated loan payment would be before signing on the dotted line. 

Your cash flows must cover the loan payments – particularly if there is a delay between when you have to pay for a project and when it generates sales. When making a budget include a plan to pay back the loan. And try to plan for the unexpected, such as a customer taking an extra month to pay you or backordered parts.

The difference between the cost to perform a job and the amount you charge for it is your profit margin. Every business owner should both know their margins, set goals and minimums for their margins, and refuse work that does not meet those criteria. Any larger project or capital investment – such as opening a plumbing supply store or purchasing a van – should also generate a profit. 

When calculating your profit margins on a job, do not forget to include a portion of your fixed expenses. Allocate expenses such as rent, electrical, and staff to each job one of your electricians takes. This will give you a more accurate idea of its profitability.

Any project that you start as a small business owner should turn a profit, otherwise borrowing is a bad idea.  

When you apply for a loan, the lender looks at your personal credit score and the business’s credit history impact when deciding whether or not to approve your application. These factors also impact the loan’s terms and interest rates. Small business owners with poor credit will find it harder to borrow. 

Before applying for a loan, request a free copy of your credit report and check your credit score. If you see any inaccurate information that’s negatively impacting your score, work with the credit bureau to have it removed. Knowing your score gives you an idea of the rate you’ll pay to borrow – since a lower credit score reflects higher risk to the lender, you’ll pay more to borrow.