Can landscaping business owners obtain financing?
Landscaping business owners can obtain financing if they meet the necessary requirements. Lenders will typically want to see a strong business history as well as a good credit score. They may also use assets or real estate as collateral. If you are just starting out or having trouble qualifying for a business loan, you may need to use a personal loan. Once you overcome the barrier that is preventing you from qualifying for a business loan, you can apply again.
How does a landscaping business loan work?
Business loans for landscapers can work differently depending on the type of loan you are getting, but you will find a few things in common regardless.
The first thing you will need to do is qualify for the loan. The lender can ask you to provide documents showing your years in business, your profitability, and your credit score. If those factors are not being considered, they may ask for proof of assets or other qualifications instead.
Once you submit the documents, you must wait for the loan to be approved. Approval periods can take anywhere from a day to a couple of months.
After the loan is approved, you can use the money to cover business related expenses. You need to pay back the loan with interest.
Landscaping Business Loan Options
There are many landscaping small business loans to choose from. Here are some examples.
- Invoice financing. Invoice financing is a type of short-term financing in which your business borrows based on the money you are owed from your customers. The trade receivables are then used as collateral. This is a good option for companies with assets locked up in receivables.
- Equipment financing. An equipment financing loan must be used to pay for equipment only. The equipment purchased is used as collateral. This is a good option for new business owners and those with low credit as credit score as these factors are not taken into high consideration. However, if you default on the loan, you could lose your equipment.
- Business line of credit. A business line of credit is a revolving line of credit that is typically secured by an asset. For recurring business expenses, a line of credit can help improve cash flow. However, for one-time purchases or expenses that you need to finance, a line of credit may not be the best option. Because a line of credit is a bank loan, you typically must show that you have a strong credit score and business history. The loan also may take a while to fund; it could take as long as a month or two. It will usually come with reasonable interest rates of 5-10%.
- Personal loan. In some cases, you may need to use a personal loan. For example, if you have been doing landscaping projects here and there, but have not established a legitimate business. You are now ready to establish a legitimate business, but you have no history of the work or income you have previously established. To get your legitimate landscaping business off the ground you may need to use a personal loan.
- SBA loans. Small Business Administration (SBA) loans are similar to traditional bank loans in terms of qualifications, interest rates and approval times. However, the organization tends to be more forgiving of business owners that default. There are a variety of loans available allowing you to choose one best suited for your professional needs. The SBA is an independent agency of the federal government created for the purpose of helping small businesses thrive.
Pros and cons of landscaping business loans
Business loans for landscapers come with their share of pros and cons. Pros and cons can vary depending on your situation, so you should always consider pros and cons that are specific to your situation. Here are some general pros and cons to consider:
PROS
- Access the funds you need to grow your business. Most business owners don’t have all the funding they need to get their business off the ground. Loans allow them to start their companies and earn income.
- Keep all the equity in your business. Most business loans will not require you to give up equity in your company.
- May come with business advice: Some lenders will provide business advice ensuring your company will be a success.
CONS
- Interest rates and fees. Business loans come with interest rates, so you end up spending more in the long run. Interest rates will be higher if you have a low credit score and little or no business history. They can also compound if you are unable to make timely payments. When shopping for loans, you will want to consider total loan costs.
- Qualifying can be difficult. It can be difficult to qualify for loans, especially if you don’t have a good credit score or haven’t been in business for a long time.
Tips for seasonal lawn care business owners
In most industries there are busy seasons and slow seasons. This is especially true in the landscaping world. While the impact of seasons may vary depending on your location, you should always prepare for slow times. Whether your lawn care business operates year-round or seasonally, you should activate the same core business principles.
- Get a strong marketing plan. A strong marketing plan can help you bring in customers. Utilize as many avenues as possible including social media, mailings, email and more. Determine which works best for you so you can bring in a high ROI as well as increased conversions. If you are operating seasonally, start marketing early.
- Repeat treatments are best. After you have been in the business a while, you will learn that most of your income comes from repeat customers, not new customers. Keep your customers coming back by teaching them the benefits of regular service. You can also offer discounts for those that open a weekly account.
- Provide seasonal services. As a lawn care company, you may find that your work will slow down during the fall and winter seasons. You can keep income coming in by providing snow removal services in the winter, leaf raking services in the fall and so on.
- Offer terrific service. Put your money where your mouth is by getting your clients’ lawns looking great. This may require extra treatments like fertilizer, weed and bug treatments. Be on time. Be friendly. Know your customers. Do what’s necessary to provide the best service possible.
- Be smart financially. Every business owner should keep track of their finances by ensuring they are not spending more than they are making. Keep on top of collections and make smart investment purchases. If you are operating seasonally you will want to plan accordingly for a slump in income.
Expenses landscapers require funding for
There are several expenses that may be covered by landscaping small business loans. These can include:
- New lawn care equipment. As a landscaper, you will need lawn care equipment such as mowers, shears, trimmers and more. It’s likely the equipment will have to be replaced over time. From in-store financing to personal loans, there are a variety of options available for financing new lawn care equipment.
- Vehicles. Vehicles will be required to carry you and your equipment from place to place. Reliable vehicles are important to ensure that you can show up for your jobs on time and ready to work. In addition, vehicles can be a tax write off, just like anything that you are using for business use.
- Raw materials. A landscaper may need funding to purchase raw materials such as soil, fertilizer, mulch, gravel and more. If a landscaper is taking on a big project, they may only receive a deposit from the customer. It’s common that customers do not pay in full until the project is complete. This means the landscaper will need funds to cover raw materials needed.
- Employees. Payroll is usually one of the biggest business expenses. You may need funding to pay your employees.
- Marketing. A good marketing campaign is vital in getting the word out about your business. You may need funding for marketing materials, software, and a marketing team.
Are landscaping businesses profitable?
The average landscaping business has a profitability of net 5%. However, a well-run landscaping company can earn a net profit of 10 -12%
What is the average interest rate on a landscaping business loan?
Annual interest rates on a business loan for landscapers range from 4.99% to 35.99%. Those with good credit and business history may be able to qualify for a bank or SBA loan that offers interest rates between 5-10%. If you can’t meet requirements, you may have to opt for an alternative loan which will come with much higher interest rates. If you can grow business profits by using a business loan, the cost of the loan can be easily justified.
What credit score do I need to qualify for a landscaping business loan?
Most business loans for landscapers require a good credit score. A credit score of 720 and above should qualify you for most loans. If your score is between 620 - 719, you may be able to qualify if you have a good business history. If your score falls below 620, you may be limited to alternative loans such as a personal loan.
In addition to a strong credit score, the lender may also want to see a reliable business history. They will generally work with a business that has an income that ranges from $50,000 to $250,000. The business should have a history of 1-2 years in service to qualify.
How to qualify for a landscaping based business loan
The qualifications for a landscaping business loan can vary and may include a good credit score, reliable business history, collateral, and other factors. The lender will let you know what’s required as well as the documents that need to be shown. These may include financial reports, income taxes, credit score reports and more. If you don’t have any financial evidence that your business is legitimate and profitable or perhaps you are just starting out, you may want to look into a personal loan.
How landscapers can get funding for their business
The first step involved in getting business loans for landscapers is to find the loan and lender that’s right for you. Once you determine your best option, you will need to meet or contact the lender. He or she can advise you on the steps you need to take to move forward. Some lenders may offer the leisure of getting prequalified online.
Now that you are familiar with your funding options, you can start taking the steps you need to move forward. Which type of financing do you feel is right for you?
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