Gaining access to capital is a challenge that almost every small business owner has to face. At some point in time, your home improvement business may be in need of a cash infusion. Capital may be needed for a variety of reasons.
Reasons Your Home Improvement Business May Need Capital
• A slowdown in sales, such might occur if you are running a seasonal business or sales slowdown unexpectedly, which can put a financial strain on your cash flow. Overhead costs do not change and having access to capital can allow you to stay in business through the lean times.
• A competitor is going out of business and an opportunity arises where you can buy expensive equipment you need at a big discount. If you don’t have money in the bank, you can still take advantage of the great deal by having access to capital.
• Many home improvement businesses need to place a bid for a job that requires a lump sum payment. Having the ability to sell your future sales at a discount allow you to have the cash on hand to place a bid and ensure more revenue.
• You’re in business with a partner and your partner wants to leave or you want your partner to leave. Being able to access capital allows you to buy-out your partner without having to worry about giving up equity.
• Payroll is crucial to a home improvement business. Many projects don’t pay until the job is complete or for 30 – 90 days after, depending on the terms of the contract. Payroll is due every week if you have shortfall in payroll you may not be able to complete the job and lose the revenue for that job.
• Your expensive equipment breaks down and you need it to be replaced in order to do the job. You won’t lose business if you can get quick access to the capital you need to replace the equipment.
The need for access to capital is not going away. While traditional banks and SBA loans are still being made, they may not be your best option. In recent years, all of the talk in the small business world has been about alternative funding. Is your home improvement business a good candidate for alternative financing?
Home Improvement Business Challenges of Getting an SBA or Traditional Bank Loan
• Qualifying for a bank loan is still difficult. Banks tightened up their lending standards after losing billions of dollars to bad loans when the country plunged into a deep recession (2008). Banks are not willing to lend to businesses without proper Fico scores and proper assets to back the loan.
• SBA-backed small business loans are offered through participating banks, but the lengthy application and large number of documents you need to provide, makes the process long and time-consuming.
Alternative Financing Opportunities & Why They Might Be Best for Your Business
While accessing capital through traditional bank loans and SBA loans may be the cheapest solution for your funding needs in certain situations, they are not always the best option for your home improvement business. There are many differences between SBA loans and SBA loan alternatives.
A Small Business Loan from an Online Lender
Alternative lending sites provide a streamlined process for getting the capital you need for your business. Generally, your loan can be approved in the same day and you can have the money in your bank in just a few days. The amount of money you can borrow depends on a number of variables including how long you have been in business and your average monthly sales. Depending on the alternative lending site that you choose, loans are typically offered in small amounts such as $5,000, all the way on up to $10,000,000.
While these loans come at a much higher interest rate than SBA loans, there are limited credit restrictions and no collateral requirements required letting you have more freedom to choose the repayment terms that work best for you. So, alternative lending companies allow you to borrow the amount you need, don’t require extensive documentation, and best of all, you get access to the money you need in just a few days.
Merchant Cash Advances
Merchant Cash Advances (MCAs) are not loans, but rather an extension of credit based on your credit and debit card sales. The lender extends a loan and you pay it back over time by giving a portion of your daily credit card processing sales to the lender. This type of arrangement works well because it allows you to repay the cash advance as you make sales. Home improvement companies who often have some seasonality to their business, are good candidates for MCAs.
Revenue Based Factoring
We know not all home improvement businesses accept credit cards and an alternative source of financing is revenue based factoring. The funder buys the revenue at a discount and collects a set amount via ACH generally daily or weekly. The future revenue become the property of the funder until the amount outstanding is paid in full. This alternative funding option is used by small business owners don’t have any future credit card sales to sell as in an MCA. These products are best for a business that wants to know exactly what they will be paying monthly.
If your bank turned you down for a loan or you are looking for a more creative and flexible way to access capital, alternative lending may be your best option. You qualify based on your company’s revenue and not on your credit history. Creative options such as making small daily payments, based on sales for the day, are available, and, you get your money fast!
Author Bio: Jon Labelle is an expert in home improvement efficiency and the remodeling industry. He’s a proud dad, blogger, dog lover and sports fan.