Article Summary: Like many small businesses, it can sometimes be challenging for landscape contractors to find the financing they need to bridge seasons, fuel growth, and meet other business needs. Here's how both new and established landscape contractors can get the business financing they need.
Many small businesses, landscapers included, sometimes have difficulty borrowing the funds they need for their company. This is particularly true if they are a very small business, a new business, don’t do $1 million or more in annual revenue, or are a very seasonal business. These businesses don’t tend to be a good fit for banks and other traditional financing sources. Nevertheless, financing for landscape contractors does exist, you just need to look in the right place and plan ahead.
Finding Financing for Early Stage Businesses
The first thing lenders want to know is whether or not your landscaping business is able to successfully service debt, and whether or not you will make each and every periodic payment on time. Basically, they are looking for a track record that demonstrates you have done it before and will likely continue to do so. Unfortunately, if your business is a brand new startup with no revenue and no track record it’s hard for the lender to make an informed decision about either of those things.
The good news is that although the bank is looking for several years in business, there are lenders that only need to see a year or more in business to qualify for a loan. Many of these lenders also don’t need to see $1 million or more in annual revenue, but will work with healthy businesses that have a good cash flow, even if they have revenues as low as $100,000 annually.
Financing in the First Year Can Be Challenging
Although the SBA offers some startup financing, it will require the borrower to have an impeccable personal credit profile, a comprehensive business plan, and collateral for the loan. If this describes you and your business, a startup loan from the SBA could be an option worth investigating.
Another potential option for a new landscape contractor looking for financing could be a micro loan from a non-profit lender. The SBA considers anything under $50,000 a micro loan, but outside of the SBA, there are non-profit lenders that sometimes work with brand new businesses. Loan amounts are generally small (think in terms of $5,000 to $10,000), but if you have a business that can leverage a small amount of money to create a big impact, this could be a good option for your business.
In addition to the loan itself, they offer counseling and advice to help your business make the most of the financing. Many of these these lenders offer very low or no interest on their loans.
Another option worth consideration during that first year in business could be a business credit card. The barrier to entry is relatively low because a credit card is easier to qualify for than a small business loan. You should expect the initial approved amount to be smaller and grow over time as you demonstrate a positive track record.
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. Many online lenders offer both term loans and business lines-of-credit to creditworthy small businesses, including landscape contractors. They are typically looking for a healthy business that can demonstrate they have the cash flow to support periodic payments.
They offer loan amounts from $5,000 to $500,000 with loan terms from three to six months up to three years or more years. The loan terms will be dependent upon your creditworthiness and your loan purpose.
Because of the seasonal nature of many landscape contractors, it’s important to plan ahead and prepare for those times when you will need some extra capital to purchase new equipment, ramp up a new crew, or bridge seasons. Waiting until the need is upon you will limit your options and make it more difficult to find the right type of financing to meet your business need.
With that in mind, here are four things I’d suggest to help you plan ahead and put your best foot forward before you approach a lender and apply for a loan:
1. Think Strategically
The beginning of the year is a good time to look at the upcoming 12 months, forecast for those times when you could potentially need some extra capital, and plan accordingly. For example, 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.
2. Micromanage Expenses When Business is Good
Having spent 20 years in a seasonal business, I came to appreciate the importance of carefully managing expenses when business was good so we had the cash flow that would allow us to keep our employees in the off season, had the cash to do repairs or fund other projects, restock inventory, and fuel marketing initiatives. It was sometimes tempting to spend more when business was booming, but because we had forecast the next 12 months, I had a good idea of what to expect, where there would be dips in revenue and when we could make up for those dips.
3. Differentiate Needs and Nice to Haves
I’m of the opinion that borrowing should benefit the business and contribute more than just “keeping the doors open” during the off season. As a result, I’m a fan of using borrowed capital to either increase profits (or ROI) or improve the value of the business. For initiatives that wouldn’t do that, I’d rely on profits captured during the busy season to fund standard business operations, and would use borrowed capital to keep employees busy doing work that would make the business more valuable. This could include things like launching a new marketing initiative, exploring a new product geared toward the traditional slack season, or working on physical facilities improvement.
4. Review Your Personal and Business Credit Profile and Take Appropriate Actions
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. Although it won’t happen overnight, consistent effort will improve both over time. Doing nothing will not and waiting until you’re ready to borrow is too late.
Landscapers who plan and think ahead will have the capital and the resources to bridge seasons and build healthy and thriving businesses. This may or may not include leveraging borrowed capital to do it. When you start with a strategic look at the year and what you will need, it will be easier to determine when the right time is to borrow and what to borrow for.