Best Business Loans for Painting Companies
Do you own, or are you thinking of starting, a painting company? Homeowners are refreshing and spending money on their homes like never before – fueled by the hours spent at home during the pandemic. It’s a great time to be in the industry.
Painting companies face low barriers to entry – you could get started for just a few hundred dollars. It’s an easy, and profitable, business to enter. Most painting companies are mom and pop businesses, so you won’t face competition from a large national chain.
If it’s time to launch or grow your business, read on to discover how the right lender can support your capital needs.
Questions to Ask Before Borrowing for Your Painting Company
Before researching the business loans available to painting companies, formulate a plan and purpose for the funds. Answering these questions will help you put together this plan, identify your purpose, and ultimately save you time and money by directing you to the best loan product.
- How long have you been in business?
Traditional banks prefer working with borrowers with a long history of successful business operations. They’ll request two to three years of income tax returns, bank and investment account statements, and financial statements during the loan approval process. Businesses with less than two years of operations will find it difficult to borrow from a bank. If your painting company only opened its door two months ago, alternative lenders are a better source of capital.
- How do you plan on using the capital?
If you’re funding the purchase of several trucks, you may need to use the funds longer and borrow more. Apply for a long-term small business loan. On the other hand, if you’re short on working capital funds for payroll and rent, a working capital loan could be the best fit. Lenders offer different loan products designed to meet different needs – and the reason you’re borrowing will direct you towards one loan product over another.
- How much money do you need to borrow, and for how long?
Once you know how you plan to use the capital you can make a budget. Think through all the costs of your proposed project – whether its adding up three months of rent or covering the startup expenses of supplies and liability insurance. You want to apply for a loan that will cover all your project’s projected expenses.
Failing to take out a large enough loan could lead to debt stacking – opening multiple forms of credit – which makes it harder to get out of debt. Borrowing too much means that your business is paying interest it could have avoided. As well, you want to borrow for exactly as long as it takes to complete the project.
- Do you have good credit?
Taking on debt in the past, paying bills lates, or missing payments, may have hurt your credit score in the past. Businesses have ups and downs, and it’s hard for many small business owners to maintain an unblemished credit report. Small business owners with a lower credit score will struggle to obtain capital from traditional lenders, who often set their lower limits at 720. However, alternative lenders will extend credit if you have a credit score at or above 500.
- What can you afford to borrow?
Taking out a loan that you can’t repay could lead to financial difficulties in a few months or years, not to mention further hurt your credit score. Before applying for a loan, prepare a budget and determine how the loan’s payment will impact your cash flows. Scale back your plans if the loan’s payments could hurt your daily operations.
A loan’s payment is calculated based on the capital borrowed, interest rate, and repayment term. If you borrow for a shorter period of time, you have less time to repay the loan and will have higher monthly payments. A longer term lowers your payments, as does borrowing less.
If you’re borrowing to support an expansion or acquisition plan, that leads to the next question.
- Will the project generate a profit?
If you’re borrowing to invest in a larger project, run a few cash flow projections to determine if it will generate a profit. Calculated potential returns on investment by taking projected net return and dividing them by the capital invested. If you’re borrowing at a rate of 15%, the projected rate of return should be higher than the cost of capital. If most of your projections show a return greater than the cost to borrow, it’s a good investment.
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Once you’ve pulled together a budget, project plan, and cash flow projections, you’re ready to look at potential business loans. One of these loans will have the best rates and terms to fit your business’ needs.
Working Capital Loans
Working capital is the money needed for daily operations – rent, payroll, and utilities. Working capital loans have a shorter term and fund quickly so that you can meet your obligations. Working capital loans can be funded in as few as 24 hours, making them perfect for temporary and emergency needs.
To qualify for a working capital loan, you’ll need a credit score above 650, been in business for two months, and generate minimum monthly revenues of $10,000. Lenders offer working capital loans between $10,000 to $1 million to qualified borrowers.
Same Day Business Loan
A same day business loan funds any immediate opportunity where waiting will result in losing that opportunity. – such as opening a great deal on inventory or purchasing wholesale inventory that may see price increases because of supply chain issues. Same Day business loans fund in amounts between $10,000 to $2 million. They can have a longer repayment period of up to three years which might better match your project’s projected timeline even if moving on that opportunity is immediate.
The longer repayment term often leads to lower payments, so its easier to manage cash flow during a project’s launch phase. Interest rates range from 12% to 45%. Small business owners with a credit score above 530 and minimum monthly revenues of $10,000 will qualify.
Short Term Business Loans
A short term loan is ideal to fund a smaller project – such as investing in new booking software or purchasing several drywall taping toolsets (which can run around $3,000).
Short term loans require a minimum credit score of at least 650 and one year in business. Your painting company must have minimum monthly revenues that exceed $10,000, but you can borrow as little as $15,000. There are no prepayment penalties, so if things go well you can pay it off early.
When it’s time to borrow to open or grow your painting company, look for a lending partner who understands your business needs. Shield Funding helps small business owners reach their business goals. We understand your business and offer a variety of loan products to meet funding needs. Reach out today to find out more.