Business Loans for Roofing Companies
Roofing contractors know that while their business has seasonality, it’s often a more stable sector in construction and offers more predictable cash flow. Experienced contractors plan for the busy summer season and save up for the slower winters.
Roofs wear out faster than other parts of homes or commercial buildings, and with winter storms, hurricanes, and tornadoes, could need replacement even sooner. They’re less reliant on consumer’s discretionary funds – such as a bathroom remodel – and homeowners insurance could cover a portion or all of the replacement. This makes them a more stable industry sector, as roofing repairs aren’t something many homeowners can defer long.
Adding roofing services to your existing construction business not only expands your revenue potential, it can help stabilize it. If your revenues have primarily come from remodels such as kitchens and bathrooms, revenues could dip in another recession. During the 2008-2009 recession, remodeling spending dipped 75%, but one Harvard study found that spending on exterior projects (such as roofing) actually grew. Roofing contractors represent $52.2 billion of the overall construction industry, but it is only projected to grow 0.6% in 2022.
If you own a roofing business, now might be the time to set yourself up to survive the next recession. If roofing is a smaller portion of your overall construction business, it could be time to focus on expanding your roofing services.
Top Reasons for a Roofing Company to Borrow
Here are some of the best reasons for small business owners who own roofing companies to borrow.
To buy out a partner or open a new business
If you’re in business with a partner who wants to retire, or the partnership isn’t working well, it might be time to buy them out. You’ll need to obtain a valuation of the business and agree upon a fair price to purchase their equity. A loan is a great way to finance purchasing their portion of the business.
After years in the roofing business, maybe you’re ready to strike out on your own. But starting a new business requires capital – you’ll need to purchase equipment such as saws, nails, and maybe even a truck. There are costs to apply for business licenses, set up a website, and market your business.
Staffing needs and payroll
While most contractors charge half up front when accepting a job, sometimes that money will only cover purchasing materials. Managing cash flow can be difficult for any business, but particularly for one when you’re waiting for final payment. In the meantime, you need to pay your subcontractors, roofers, or office staff.
If you’re growing, you could need to bring on new help. Whether it’s salespeople to bid new jobs or office staff to coordinate work, sometimes you need to hire before growth has produced actual revenues. A working capital loan could help you cover payroll or staffing expenses while waiting for invoices to be paid or grow to produce revenues.
Upgrading technology, websites, and software
Why does a roofing company need upgraded software or a nice website? Your website is often how new customers will find your business. A professional-looking site with photographs that feature your work reassures customers of your quality and legitimacy. You could even use it to drive new business by investing in a blog or how-to tips.
Booking and scheduling software can increase efficiency. It ensures that you’re maximizing your roofer’s time and making the best use of your teams. It can also track profit margins and help you prepare more accurate bids.
Purchase roofing inventory
Having inventory on hand means that you can start work as soon as the customer’s deposit clears. It avoids slow downs and delays that can eat into your profits – particularly with the supply chain issues of the past few years. Purchasing inventory and holding it hand could require investing in an inventory management system, but it also means that you can order in bulk and take advantage of discounts.
Purchase new or replace existing equipment
Top of the line, high quality tools and equipment get the job done. They can even shorten the time to finish work – increasing your profit. You’ll need electric and cordless drills, air compressors, safety equipment, and possibly a roof hoist. There’s a long list of equipment needed to start a roofing business – not all of it necessary when you’re just getting started, but investments you might want to make down the line.
Questions to Ask Before Borrowing
Now that you know why it might be time to borrow, dig into your business a little deeper. The answers to these questions will help you identify the best lender and loan product to meet your needs.
How long have you been in business?
Traditional banks and lenders typically work with borrowers who have a long history of successful business operations. If you’re new, or have less than two years of operations, it could be difficult to obtain bank financing. If you only started your roofing company two months ago, an alternative lenders are a better source of capital.
- How do you plan on using the capital
Lenders let you borrow their money for a set period of time – the loan’s term. It’s wise to match the term to the timing of the benefit you expect to see from using the capital – you don’t want to be making payments on a loan after a project is complete.
If you’re funding a large project or the purchase of significant inventory and equipment, you may need to use the funds longer and take out a larger loan. A long-term loan could best meet your needs. On the other hand, if you only need to cover working capital needs for a month or two a working capital loan could be the best fit.
- Do you have good credit?
Whether it was a truck loan or financing your business through credit cards, taking on debt in the past may have hurt your credit score. Traditional lenders rarely work with borrowers who have credit scores less than 720. They will occasionally lend to borrowers with scores as low 650 if they have collateral to pledge.
Before starting the loan application process, pull a free copy of your credit score. It will tell you both the likelihood of getting approved for a loan but also the interest rates and terms lenders might extend. A lower credit score represents more risk to lenders, and they will charge you more to borrow.
If you have a credit score at or above 500, you’ll need to approach alternative lenders to meet your capital needs.
- What can you afford to borrow?
Before applying for a loan, look at your budget. How will the loan’s payment impact your cash flows? Can your business’s current and projected revenues cover daily expenses and the loan payment? If it could be tight, consider scaling back your plans and borrowing less.
The loan’s payment is a combination of the amount you borrow, the interest you pay, and how long you have to repay the loan. While the lender may select the interest rate and repayment period, taking out a smaller loan will lower your monthly payment.
- Will the project generate a profit?
Return on investment is the net profit of a project divided by the money used to finance it. If you’re borrowing at a rate of 15%, the projected rate of return on your investment should be higher than the cost of capital. If you predict that investing a loan’s funds into your business will return 18%, it’s a smart financial move.
Best Business Loans for Roofing Companies
Now that you know why you need the money, and have established how lenders will view you and your business, one of these loans will likely jump out as the best option.
Working Capital Loans
Working capital is the money spent on day-to-day operations. Working capital is the term that covers rent, payroll, and utilities. Working capital loans have a shorter repayment term because they’re meant to help business owners who face temporary cash flow issues, not cover large projects.
Lenders can process your application and release funds for a working capital loan in as few as 24 hours, making them the perfect choice for temporary and emergency needs. To qualify, you’ll need a credit score above 650 and your business must have minimum monthly revenues of $10,000. Lenders offer working capital loans between $10,000 to $1 million.
Immediate Business Loans
A fast business loan can funds immediate opportunities – such as investing in a great deal on warehouse space, large liquidation inventory purchases, or opening new offices that can have an immediate impact on revenue. Lenders offer fast business loans in amounts between $10,000 to $2 million. Because they’re intended for immediate projects, they can have repayment periods that are shorter terms because they fund so quickly.
With a shorter repayment term, you’ll have higher payments, which makes it a little harder to manage cash flow during the project’s launch phase. Interest rates range from 12% to 45%. Your roofing company qualifies if you have a credit score above 530 and minimum monthly revenues of $10,000.
Short Term Business Loans
A short term loan is best to fund a smaller project – such as investing in new scheduling software or office furniture – which will be completed within a year. The repayment periods for short-term loans fall between that of a working capital or a large business loan.
Short term loans require a minimum credit score of at least 650 and one year in business. Your roofing company’s minimum monthly revenues must exceed $10,000, so consider applying during the busy season when revenues are high. You can borrow as little as $15,000, and there are no prepayment penalties.
Equipment Financing Loans
Equipment financing loans have one purpose – to fund the acquisition of equipment. The equipment you purchase with the loan serves as the loan’s collateral. Because the lender could seize this equipment to recoup losses should you default, these loans have lower interest rates.
An equipment financing lender could require you to submit information about the equipment you intend to purchase with the loan, including an independent appraisal of its worth. Interest rates range from 7.5% to 12.5% and have a few years repayment period.
When it’s time to borrow to open or grow your roofing business, look for a lending partner who understands your business needs. Shield Funding has worked with small businesses for over twelve years, helping them reach their business goals. We understand your business and offer a variety of loan products. Reach out today to find out more.