Financing For Plumbing Companies
Many of us have had clogged drains in our houses or emergency toilet issues, and what do we do? We call a plumber. More often than not, people underestimate what a plumber really does and how vital plumbers and the plumbing industry is to our economy, as well as the necessity plumbers play in our daily lives! Specialists in the plumbing industry have job duties that span a wide range of liquid and gas-conveying pipe work. A plumber is responsible for the installation and maintenance of numerous types piping systems and fixtures that are in residential properties, commercial properties, power plants, water treatment facilities, waste disposal plants, and factories. While a specific plumber’s job and responsibilities will vary from plumber to plumber, all plumbers must have the ability to follow blueprints, work with plumbing tools, and know what types of materials are required for each job. Similar to other industries, such as construction contractors and machine shops, the plumbing industry is still struggling to find well trained and skilled employees to help meet the high demand for plumbing necessities.
Plumbing Industry Trends
The plumbing industry is very closely linked to the building market and consumer spending. What this means for plumbing businesses is that keeping an eye out on the current construction and home buying trends of the next few years is vital to staying successful and ahead of the competition. While the plumbing industry has seen fluctuating increases and decreases in consumer spending since the 2008 recession, things are looking up for the plumbing industry. In the past few years, consumer spending and corporate profit have led to an increased revenue for the plumbing industry. After the recession, consumer spending and comfortability decreased drastically, but after 2014, plumbing companies across the board felt optimistic about the increase in consumer confidence and job demands.
With more demand for residential jobs, there is a double edge sword in play now. On one side, consumers are demanding more green alternatives to renovate, or add to, their houses which many plumbing companies are starting to venture into. However, there is still a large population, particularly aging Baby Boomers, who are not fully ready to make this transition, especially when they are focused on home improvements from plumbers that will make the transition into aging easier, such as higher toilets and sit in showers. These plumbing industry trends are allowing many plumbing companies to either expand their business into both areas, or allow plumbing companies to choose one area to specialize in. While this is a good sign for growing plumbing businesses, many analysts are cautioning plumbing companies looking at expanding into both sectors, as they are worried more attention will be given to one sector more than the other, essentially compromising future customers.
Other areas that are being largely affected in the plumbing industry is the demand for qualified, certified, and skilled workers who are willing to work a dangerous job, as well as the transition into newer technologies. Many plumbing companies throughout 2015 struggled with high demand for commercial and residential jobs with a lack of qualified employees. This is leading to an increase in wages for those new or current plumbers who have already undergone training and certifications. In conjunction with the already limited workforce, plumbing companies throughout the industry are having difficulties finding qualified plumbers who can also add to their plumbing company through the innovative use of new technologies – this is a skill that many plumbers who have been in the business for years are struggling with. There are many emerging trends throughout the plumbing industry that are affecting business both positively and negatively, but no matter the situation there is always a need for financing and loan options for your plumbing business.
Why a Would a Plumbing Company Need Financing?
- Insurance costs are unavoidable in the plumbing industry. Unfortunately, plumbers have a dangerous job. There are many concerns and safety issues when it comes to plumbing, such as toxins in paints and hazardous waste, as well as having to climb around high places and under structures. Many plumbing businesses are obligated to have good insurance which can be pretty expensive. During slow seasons, or fluctuating economies, financing options can help. If you need fast financing, merchant cash advances could be an option.
- Cash-Flow. Unfortunately, the plumbing industry will always be effected by the fluctuating market and economy. For the past few years, and hopefully for the next few years, we have seen an increase in generated revenues. However, if times are slow or tough again, there are always loan and financing options available for your plumbing business.
- Payroll for quality workers, as well as new training for workers, can be expensive in the plumbing industry because of the limited options for these skilled workers. Reviewing the different financing and loan options for the plumbing industry can be an asset when it is hard to reach these necessary demands.
- Going green should be at the front of every plumbing business owner’s mind today. Exciting new developments in regulations and certifications in weatherization of existing structures is something to keep in mind. Due to growing concerns over climate change, the Federal Weatherization Assistance Program of the United States Department of Energy has developed opportunities to receive training and certificates in this field. Looking into different loan and financing options to help afford getting all of your employees trained and certified can help!
- Technology is the most important of every business and industry in the world today. Those who can stay on top with the latest technological advances are thriving. For the plumbing industry in particular, transitioning new technologies into your plumbing companies is vital. As mentioned above, going green is no longer a fad, it is a way of life that is deeply ingrained in our society today. There are many new appliances that plumbing companies should be considering carrying for their clients, such as dishwashers and plumbing systems that reduce the amount of water waste. Many of these technological necessities are incredibly expensive, so being aware of the different equipment financing options available to your plumbing company can help.
- Newest and latest: Consumers are also demanding appliances in the home that revolve around the Internet of Things. For example, toilets that flush automatically, faucets that are ‘touchless’, and toilet seat lids that close on their own are all increasing in popularity.
- GPS: Another major technological demand that will help plumbing companies is the use of GPS fleet tracking technology in all of your service vehicles. Over 67 percent of customers will not do business again with a plumbing company who sends a technician late. This new technology will limit the amount of time and mileage wasted in service vehicles, as well as improving customer relations.
Types of Plumbing Business Loans
|Bank||6-10%||3-7 years||14-30 days|
|SBA||6-10%||3-7 years||10-30 days|
|Line of Credit||5-15%||1 – 3 years||7-30 days|
|Alternative||6-25%||1-5 years||5-7 days|
|Cash Advance||1.16-1.55||3-24 months||1-3 days|
|Invoice Finance||1-2% weekly||1 – 90 days||1-3 days|
Plumbing Bank Loans
Traditional bank financing should always be the first option that a plumbing business should consider. Traditional bank loans and plumbers lines of credit typically offer the lowest rates, however traditional bank loans can be more difficult to obtain. Banks usually require strong personal and/or business credit scores to qualify for the best and lowest rate plumbers loans. Traditional bank funding also take a long time for the entire process to happen, leaving plumbing businesses in need of capital quickly at a loss for what to do next. If your plumbing business has great credit and the time to put the effort into the lengthy process of a traditional bank loan, then utilizing this option first is essential. Obtaining traditional bank-rate plumbing loan is reliable, has lower rates, builds your plumbing business credit, and allows your plumbing business to build a relationship with a lender that can benefit you in the future.
- Rates: 5-10%
- Terms: 1-25 years
SBA Plumbing Loans
The next best option to a traditional bank loan if your plumbing business is unable to obtain traditional financing, especially if you are a smaller plumbing business, are SBA plumbers loans. Many small plumbing businesses have difficulties obtaining traditional bank financing because of the strict requirements, however SBA loans are backed by the Small Business Administration. What this means for plumbing businesses is that the Small Business Administration agrees to cover a majority of the SBA lender’s losses if a plumbing business defaults on the loan.
- Rates: 6-8%
- Terms: 3-25 years
Alternative Plumbers Loans
Alternative plumbing company loans are typically referred to as mid prime small business plumbing loans. Alternative business loans and lines of credit are still a legitimate loan, allowing plumbing businesses to use the interest associated with mid prime small business financing as a tax deductible. Mid prime plumbing business loans still require decent credit and often have higher interest rates than bank loans, however the approval rate for small businesses is higher (70%) than traditional bank loans and SBA loans.
- Rates: 8-25%
- Terms: 1-5 years
Asset Based Plumbing Loans
While the best option for any plumbing business is to try and obtain traditional bank loans or SBA financing, if your plumbing company has a low credit score, does not have sufficient cash-flow for bank loans, or already has a traditional or SBA loan in place, asset based plumbing loans are always a good option. Asset based lending allows a plumbing business to use collateral for the asset based loan, such as inventory, invoices, real estate, or equipment, depending on the asset based lender.
- Rates: 10-20%
- Terms: 1-5 years
Plumbing Company Equipment Leasing
Having quality equipment is always important for any plumbing business. Reviewing equipment financing options can be incredibly helpful with your plumbing company. Equipment loans are debt financing facility used to purchase new or used plumbing equipment. Equipment financing options allow your plumbing business to obtain equipment quickly without having to find expendable capital in your plumbing business to cover the costs up front. A plumbing business typically uses SBA loans, bank term loans and lines of credit, alternative loans, and merchant cash advances for equipment financing.
- Rates: 6-20%
- Terms: 1-10 years
Plumbing Cash Advance
Plumbing merchant cash advances are not actual loans, but instead are the sale of your plumbing businesses’ future receivables, such as credit card processing or bank account deposits, in exchange for upfront cash funding. While this is not a typical loan, merchant cash advance financing allows your plumbing business to obtain capital quickly because the approval time can be as little as 2-24 hours with funding available within as little as 2-5 business days. For plumbing businesses with poor credit, merchant cash advances are also a great financing option because this type of financing is cash flow driven.
- Factor Rates: 1.16 – 1.50
- Terms: 3 – 24 months