Plumbing businesses have a great scope for growth in the US market. As per the Bureau of Labor Statistics, the average earning of a plumber was $56,330 per year in 2020. And the number of opportunities is likely to increase in the coming decade at a rate of 5%.
If you want your plumbing business to grow, you need sufficient funds to expand your services. Therefore, you can take the help of a few business loans for your plumbing business. There are many options for financing you can avail of at a lower interest rate.
They also don't have a time-consuming loan process for loan approval. So, to make things easy for you, we will discuss a few types of business loans that will help you grow your company in no time.
Best Types of Business Loans for your Plumbing Company
These loans below can help you source new equipment, avoid liquidity crises, and allow you to expand your business operations in several ways.
1. Asset-Based Loans
One of the best loans if you are looking to buy a non-current asset for your plumbing business is an asset-based loan. You can use it to purchase any equipment or finance a new vehicle that will allow you to provide more services to your customers.
Asset-based loans are also known as collateralized loans since it requires you to provide collateral against the loan. In addition, it gives business owners with a low credit rating access to the necessary equipment for their growth. You can enjoy loans for your assets with a FICO score of 550
However, you will have to make a down payment from 15% to 50%, depending on the lender. The term of your loan will vary from the item you are looking to finance. For instance, you can get a 7 to 10-year loan for your van. However, you will only get the loan for your plumbing supplies for 2 to 3 years.
2. Small Business Administration (SBA) Loans
Another optimal financing option for your business is the SBA loans which have the government's backing. Since the government offers these loans, it becomes easier for small businesses like plumbing companies to expand their operations.
It can allow you to buy new equipment or plumbing supplies as per your need. The best part is that these loans have a lower interest compared to conventional loans since the government is involved. But, it has a longer processing period since the agency involved might take time to approve it.
The credit score for an SBA loan is higher than an asset-based loan. You will need a minimum credit score of 680 to get the loan for your business. SBA loans often have a high loan term with a repayment period as high as 25 years.
3. Personal Loan
Usually, lending institutions have a policy of giving business loans to companies operational for quite some time. Therefore, you might find it challenging to get a business loan if it is a new plumbing business. Nevertheless, you can always choose to go for a personal loan to cater to your business's financial needs.
You need to ensure you have a good credit score as a bad rating will mean higher interest rates. The loan terms for a personal loan vary from lender to lender. Some lenders will charge you an additional fee if you want to pay a balloon payment.
A balloon payment is when you pay the loan before the term ends. It is why you need to discuss the terms of the loan with your lender before signing up for this financing option. Since personal loans don't require collateral, you might have to pay a higher interest rate if you don't have an optimal credit score.
Even if you choose to take a loan against any collateral, a bad credit score will ultimately result in a higher interest rate.
The credit score necessary for a personal loan with a low-interest rate is 680 or above. Moreover, the loan processing time is significantly low as you can get the approval within a matter of hours, or it can take a couple of weeks.
4. Invoice Factoring
Debtors can take up a lot of time to clear your payments. It can lead you towards cash flow problems as you won't have the funds to run your operations. That is where the financing options of invoice factoring can help you out.
It is a short-term working capital loan that allows you to get funds against your accounts receivables. However, you will have to pay high-interest rates if your clients don't make the payments on time. Nevertheless, if you want to get money on the spot or within a matter of days, invoice factoring is your go-to option.
5. Equipment Leasing
A plumbing business looking to free up their working capital while getting their hands on equipment should go for an equipment leasing option. It helps you in multiple ways like:
- Releases your working capital
- Allows you to use the free up money for day-to-day operations
- Helps you in not tying up your resources in purchasing expensive tools
Different leasing options have multiple features. Usually, they allow you to update or upgrade your existing equipment. Moreover, you can use it to recover maintenance and repair costs for your equipment. There is no hard and fast requirement regarding the credit score.
In addition, the duration of the loan depends on the life cycle of the equipment. You can get the loan in your hand within a matter of minutes. However, it might take more time to approve a loan in some cases.
In a Nutshell
These are some types of loans that your plumbing business can take advantage of and achieve your goals. These options allow you access to funds in a short span with a not-so-heavy interest rate. It is also not a hectic task to find a lender for these loans.
You can head over to any bank or other financing option to discuss your business's loan needs. They will go through the necessary process and give you the business loan without putting you into a lot of hassle.
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