Article Summary: HVAC contractors, like most small businesses, often rely on borrowed capital to fuel growth, increase ROI, and fund other business initiatives. Depending upon the size of your business, the length of your track record, your business’ annual revenues, or the seasonality of your business cycle, borrowing can sometimes be a challenge. Nevertheless, there are financing options for HVAC contractors, you just need to know where to look and know how to be prepared for your loan application.

Financing for HVAC Contractors

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Financing a Startup is a Challenge, but with a Year Under Your Belt, there are More Options

Once you’ve been in business for a year and have at least $100,000 in revenue, you’ll have more options and a better chance of finding the financing you’re looking for. Many online lenders offer both term loans and business lines-of-credit to creditworthy small businesses, including HVAC contractors like you. They are typically looking for a healthy business that can demonstrate they have the cash flow to support periodic payments.

These lenders offer loan amounts from $5,000 to $500,000 with loan terms from three to six months up to three years or more. The loan terms will be dependent upon your creditworthiness and your loan purpose.

Avoid These 3 Mistakes to Improve the Odds of Finding a Business Loan

Depending upon the lender you choose the qualification criteria might be different, but there are a couple of mistakes you can avoid to improve the odds of success.

Mistake #1: Waiting Until the Last Minute

I’m a big fan of thinking strategically and anticipating when you might need to borrow, how much you might want to borrow, and what you need to borrow for. Of course, doing this requires that you also have a strategic plan for the year generally and what I’m suggesting will likely be part of that master plan.

Waiting until the need is upon your HVAC business before you start looking for financing can be problematic for a number of reasons:

  1. You may not have the luxury of time to wait for a loan approval
  2. You may need the borrowed capital before your lender can fund the loan
  3. You might have fewer choices for financing
  4. Your application could get rejected and you won’t be able to meet the business need

Planning ahead will give you the opportunity to critically review your credit profile and make the adjustments needed to make improvements, if necessary. It will also give you the ability to plan when you apply. For example, if your HVAC business is seasonal, the time to borrow bridge capital is not when your business is in the middle of the slump. Make your application when you can demonstrate more cash flow than you’ll need to service the periodic payments. With that in mind, you’ll want to ensure that your business will be able to service the debt during the slack time.

Mistake #2: Ignoring Your Personal Credit Score

For most small business owners, your personal credit score will always be a part of most lender’s creditworthiness evaluation. In addition to your business credit profile, your annual revenues, your time in business, and your cash flow, lenders also consider your personal credit score when they try to determine if you will make each and every loan payment.

If you have a less-than-perfect personal credit score or your business credit profile is weak, start taking actions now to improve your personal score or build a strong business credit profile.

You can start by reviewing your personal credit score to make sure all the information they have about you is accurate, see where you are now, and make plans to improve, if needed. In addition to the major credit bureaus like Equifax, Experian, and TransUnion (who offer credit monitoring for a fee), there are a number of free services that give you access to your credit report, monitor your credit usage, and alert you when there is activity.

It’s human nature to impact the things we pay attention to, so monitoring your personal credit score is a good first step. I don’t think a monthly review is too frequent.

Although it won’t happen overnight, consistent effort will improve your personal credit score over time. Doing nothing will not and waiting until you’re ready to borrow is too late.

Mistake #3: Failing to Control Expenses

Although controlling expenses might not feel like it has anything to do with applying for a loan, I believe it does. Lenders are looking for creditworthy borrowers who can demonstrate they have the ability to service debt.

Controlling expenses during the busy season is particularly important for HVAC contractors with very seasonal businesses, because borrowing to bridge seasons only works if you have the capital available to make the periodic payments through the slow season. Managing your expenses during the busy season might not provide enough capital to fund your business during the off season, but it could be enough to make the periodic payments, should you decide to borrow.

HVAC contractors who plan and think ahead will be in a better position to borrow when they need additional capital to grow their businesses. Don’t wait until the need to borrow is critical, think ahead and start preparing now, don’t ignore your personal credit score, and don’t neglect how important it is to control your expenses during a busy season to make sure you have the capital available to make loan payments when needed.

Although avoiding these mistakes is no guarantee you’ll get the loan you are looking for, it will help you better prepare and improve the odds of success when you fill out a loan application.

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