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Plumber Business Loans

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How To Get Financing for a Plumbing Business

In 2021, the plumbing industry has an estimated worth of $124 billion. It is a slow growth industry with expected growth of 3.7% this year. If your plumbing business includes fixture sales, the global market for plumbing fixture sales was $75 million in 2016 and will reach $1.12 billion by 2023. Demand for plumbers is expected to increase by 12% by 2024.

Small, local businesses dominate the plumbing industry, which is not surprising as many people rely upon word-of-mouth to find a good plumber. There are 127,343 plumbing companies in the United States, and over 60% of them only employ one to four people. It’s an industry with low barriers to entry and lots of opportunity.

With looming retirements in the plumbing industry creating a labor shortage, and a boom in home repairs and new home construction, this is a great time to be a plumber. If you’ve been thinking of branching out and opening your own plumbing business, or expanding your business, you could need a capital infusion to grow.

If you’re ready to apply for a loan now, lenders at Shield Funding stand ready to help meet your borrowing needs. But if you need to think through your options, read on

Top Considerations Before Applying for Plumber Business Loans

Before you apply for a loan, you should have a good idea of how you intend to use the funds and how you’ll pay it back. Borrowing is a common tool to help businesses succeed, but like any tool, you have to use it correctly. 

Are you already an owner or are you looking to open or acquire a new business?

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.

Why do you need the funds? 

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.

What can you afford to borrow? 

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.

Will the project generate a profit? 

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.  

Establish the funding timeframe 

For capital investments, apply a matching principle. The loan’s term should end close to when the project is complete. It’s important to know how long your project will take, or how long you’ll need to use the money, before you apply. 

The lender selects a loan repayment term. With alternative lenders, this could be a few months.  Since the repayment is spread out over a more concentrated timeframe, a shorter repayment term means you’ll have a higher loan payment. But since it’s inadvisable to still be making payments on a loan when you’re no longer receiving the benefits of what it funded, a short-term loan is often your best choice.  

What is your business and credit history? 

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. 

Best Business Loans Available for Plumbers

Starting a new business, expanding operations, or covering daily expenses always requires capital. If you want to purchase a franchise it can take considerable capital, as you are buying name recognition and corporate support. Starting a solo enterprise could be free to cheap if you already own the tools, but unless you plan on always chasing small jobs, you will have to invest in your business to grow. 

Although Shield Funding only offers business loans to existing businesses, it can be a great resource a couple of months after you launch and have generated some revenues.

Working Capital Loans

Working capital keeps a business running. It is the money you have available to pay for daily expenses such as rent or payroll. To calculate it, take the current assets on your Balance Sheet and subtract current liabilities. A positive balance indicates that you could pay all your liabilities likely to come due in the next 90 days. Most financial advisors advise having two times the amount of current liabilities available to your business.

For many small businesses, particularly in the first year of operations, cash flow is a concern. If you are waiting for payment on a job, but your subcontractors demand payment, you might not have enough cash-on-hand to pay your bills. Businesses go through lulls, and if it is slow, you will still have to cover payroll. Working capital loans help manage cash flow ups and downs.

Growing a plumbing business requires taking on additional employees. While you can pay other plumbers per job, office and support staff must be paid per your agreement (typically hourly). Once your business reaches a certain size, you may need to hire a full-time plumber to bid on and accept new work, but until those jobs have paid, you will not have the money to pay them. A working capital loan helps you cover that gap.

Typical terms for working capital loans are 12 to 26 months, which could help pay your first year’s expenses. Shield Funding requires that borrowers have a minimum credit score of 650 and minimum monthly revenues of $10,000. Interest rates range from 9% to 45%, and your interest rate will be based, in part, on your credit score.

Short-Term Business Loans

If you have a temporary cash flow problem, or a substantial unexpected expense, a short term loan might be best for meeting your needs. 

Learning the ropes of a new business has a certain amount of trial and error. If you incorrectly estimated the cost of materials on a job, the deposit you collected might not cover those upfront expenses. Taking out a short term loan to pay for them allows you to complete the work and receive the final payment.

A short term loan has the same costs for banks as a long-term loan, but because they make more money off long-term loans, they are reluctant to lend for short terms. Alternative lenders offer short term business loans at higher interest rates than a bank, 9% to 45%, but with terms of just six to twenty-four months. If you have good credit, your interest rate could be less than a business credit card.

Shield Funding requires one year of business history to apply for a short term loan, and a credit score of at least 650. Minimum monthly revenues must exceed $10,000, but you can borrow as little as $15,000, and there are no prepayment penalties. If you know that you can pay off the loan quickly, a short term loan could keep your business on track.

Bad Credit Business Loans

Alternative lenders offer bad credit business loans to borrowers who cannot or do not want to borrow from a traditional lender. Bad credit business loans make capital available to borrowers who cannot get approved for a loan at a bank. While your credit score could disqualify you for bank financing, other factors could also lead to a loan application’s rejection.

Banks reject about the same number as loan applications as they approve. They typically require that applicants have two years of tax returns, their business must produce strong revenues, and they have to show consistent growth. The loan application and approval process can take months, which is frustrating for newer business owners with immediate needs.

Alternative lenders can approve a loan application within 24 hours and disburse funds in as little as a week. As long as you have monthly revenues above $8,000 and a credit score above 500, you can qualify for financing with an alternative lender. Shield Funding gives borrowers loans in amounts ranging from $5,000 to $1 million, at rates of 12% to 45%, for terms of two to eighteen months.

If you’re ready to borrow now, apply for a loan today! It takes just a few minutes online, and you could be funded within a few days.

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