The roofing service industry is one of the fastest-growing businesses today. More people are looking for affordable housing in urban and rural areas. Therefore, the demand for roofing services such as installing new roofs and repairs has increased, creating an opportunity for entrepreneurs to venture into it.
But like many other startups, you will need to secure funding for your roofing business to get it off its feet. The funds will help you acquire all the resources you’ll need in your business. For example, you may need to get licenses and insurance. Also, you need to market your business and hire the right labor. Finally, you’ll need to purchase inventory and roofing software to help you manage your business to ensure it’s running smoothly.
All these require funding to run. Even after you have launched your business, you’ll still need money to keep your business running, so securing funding should be a priority.
However, before you go ahead and decide to get funding for your business, there are several
things that you need to do. Here are some of them:
Create a business plan
The first thing you need to do when looking for funding is to develop a business plan. This document outlines how you intend to start and grow your business. It should include details such as the amount of money you need, what you plan to use it for, and how you will repay the loan.
You need to be very detailed in your business plan as it will give you a better chance of securing funding. If you’re not sure how to create a business plan, you can always seek help from a professional or use one of the many online templates.
When looking for funds, investors may ask you about your plan. This will show them how you plan to grow your business, and it also shows the level of commitment you have towards your business. It can also be your guide on what needs to be done and when to avoid the pitfalls that are common with startups.
Determine how much you need
Next, you have to calculate how much money you need to get started. This will give you a clear idea of how much money you should be looking for when approaching investors. It would help if you had a detailed business plan that outlines all the costs associated with starting your roofing business.
Some of the things you should include in your calculation are the cost of licenses and permits, marketing and advertising expenses, the cost of inventory, the cost of hiring labor, and the cost of purchasing roofing software. Doing so will help you understand how much money you need to start and operate your business.
Research financing options
After you have determined how much money you need, the next step is to research all the financing options available. This will help you identify which option is best suited for your business. There are many financing options available for small businesses, such as small business loans, lines of credit, and venture capital.
The best way to decide on which financing option you’ll need is to research the pros and cons of each option. This will ensure that you settle for the most suitable terms for your roofing business. Always remember that what works for another business may not work for you since you are all operating under different scopes.
Here are some of the financing options that you can explore to fund your roofing business:
1. Self-funding
One of the best ways to start your roofing business is by self-funding. You may not have any experience in the roofing industry, but this can be an option for you if you have some money. For example, if you have $15,000 saved up, you can use that money as seed money to start your own roofing company. You will need enough money to cover at least six months’ worth of expenses until you start making profits from your new business venture.
Alternatively, you can also collect payments from your customers and use them to expand your business. But for this method to be efficient, you need to ensure that your customers pay on time. You can achieve this by using professional invoicing templates from companies such as Jobber. A professional template will allow you to invoice faster and avoid inconsistencies. This, in effect, may encourage your clients to pay on time, and you can use the money to further fund your roofing business.
Pros of self-funding
Self-funding your roofing business has several benefits, such as the following:
- You won’t have to worry about repaying loans, and this gives you ample time to grow your business.
- You’re in complete control of your business, what it does and what it specializes in.
- You can start your business immediately without waiting for loan approval which helps you take opportunities as soon as they come.
Cons of self-funding
However, self-funding also has its drawbacks, such as the following:
- There’s a limit to how much you can grow your business with your money.
- You’re putting your finances at risk, and if your business fails, you could end up broke and in debt.
“An equipment loan is ideal for roofing startups because it allows them to buy equipment with no money down”
2. Equipment loan
One way to fund your roofing startup is by taking out an equipment loan. Banks and other credit institutions typically offer these loans, and they allow you to borrow money to purchase business equipment. Moreover, an
equipment loan generally has lower interest rates than other loans because it is secured by the assets you purchased with the money from the loan. If you fail to make payments on your loan, the bank will essentially repossess or take back your purchased items or financed equipment as collateral.
Under this type of loan, you can choose equipment acquisition loans, equipment leasing options, lines of credit, and cash advances on credit cards. This option is ideal for roofing startups because it allows them to buy equipment with no money down. Also, it can help you expand your roofing business to new markets. For example, this financing option will provide you with the equipment you need to transition when you want to try commercial roofing instead of residential roofing.
Pros of equipment loan:
Some advantages of using an equipment loan include the following:
- The loan is basically secured by the equipment you purchase. This means you don’t have to encumber your existing properties just
to make collateral. - You can use the equipment as soon as you make the purchase, allowing you to grow your business quickly.
Cons of equipment loan:
Some disadvantages of using an equipment loan include the following:
- If you default on your payments, the lender can take away your equipment, and this would leave you without the assets you need to
operate your business. - Most banks don’t offer flexible loan terms, and they require tons of paperwork and documentation before you can get approved for
an equipment loan.
3. Use crowdfunding
Crowdfunding is essentially a way for people to pool their money together to fund something traditional methods wouldn’t normally fund. These are often small businesses or startups that need capital to get off the ground or expand.
The beauty of crowdfunding is that it allows you to raise funds from various sources: family and friends, loan sharks, venture capitalists, and even strangers who believe in your idea or product. The most successful crowdfunding campaigns raise hundreds of thousands of dollars—but even if you fall short of that goal, you’ll still have plenty of support from backers who want to see your idea come to fruition.
Moreover, crowdfunding helps create awareness about your business. People who pull funds for your business can help you with marketing, or they can hire you to take jobs. This will help your business get a good head start.
Pros of crowdfunding:
Crowdfunding has the following benefits:
- You can raise a lot of money quickly through crowdfunding platforms.
- Crowdfunding campaigns can create awareness about your business, which can help you get more customers.
Cons of crowdfunding:
Crowdfunding also has some drawbacks, such as the following:
- It can be difficult to reach your fundraising goal, and if you don’t, you might not get any money.
- You might have to give away equity in your company to backers, which can dilute your ownership.
4. Traditional loans
There are several traditional loans that you can use to fund your business. These loans vary depending on the interest rates and repayment period:
- Bank loans: A bank loan is one of the most common sources of financing for small businesses. Banks typically offer
loans with repayment terms between one to 10 years, which may be ideal if you’re looking to grow your company quickly. This loan is
appropriate if you are looking for large funding as this is a long process. The downside of taking out a loan from a bank is that it
requires collateral or strong credit backing, which can be difficult to provide. - SBA loans: Small Business Administration (SBA) loans offer low-interest rates for small businesses with good credit ratings and sound business plans. These loans are guaranteed by the federal government and have terms ranging from three months to seven years, with longer terms available in some cases. They are ideal for the roofing business as they accommodate asset and credit-based risks.
- Online lenders: Online lenders have become more popular with small businesses in recent years, as they offer access to financing more conveniently than traditional banks. They typically lend against the value of assets rather than credit scores or personal income, which means that even if your business is still in its infancy, you can still get a loan to help fund it.
When picking the type of loan to use in your business, consider the interest rate and the repayment period. These factors will affect how much you’ll pay back on a monthly basis.
Pros of traditional loans:
Traditional loans have the following benefits:
- They offer a fixed interest rate, so you’ll know exactly how much you need to pay back each month.
- Bank loans often have a long repayment period of up to 30 years which means you have ample time to grow your business and pay back the
loan.
Cons of traditional loans:
Traditional loans also have some drawbacks, such as the following:
- The application process can be lengthy and difficult, especially for startup businesses.
- You might need to provide collateral, such as your home or another asset, to get a loan.
“Equity financing allows you to raise money without having to repay it”
5. Equity financing
Equity financing is another common form of financing for a roofing startup. In this case, you sell a portion of your company to investors in exchange for money. The amount of equity you need depends on how much funding you need and how much time you have before your business needs to be profitable.
The main benefit of equity financing is that it allows you to raise money without having to repay it. You can also get help with marketing and other aspects of running your business that will help attract more customers and make it more profitable over time.
Pros of equity financing:
Equity financing also comes with several benefits, such as the following:
- It can help you attract more customers and grow your business more quickly.
- The investors are also experts in other fields, and they can also give professional advice or even refer you to other clients to help your business grow.
Cons of equity financing:
However, there are also some drawbacks to equity financing that you should be aware of, such as the following:
- You will have to give up a portion of ownership in your company, which means you’ll have less control over it.
- You might not be able to get equity financing if your business is still in its early stages and isn’t yet profitable.
6. Merchant Cash Advance (MCA) loans
If you are a startup roofing company, you may be looking for ways to get the working capital you need to grow
your business. A Merchant Cash Advance (MCA) may be a good option. This type of loan uses your future revenue as collateral which means you’ll get the money you need now and won’t have to worry about making repayments until your business is doing well.
After your business starts generating monthly revenue, you can then use a certain percentage of your revenue to pay the loan. This could be a fixed monthly payment, a fixed daily payment, a percentage of your sales, or a flexible amount that fluctuates based on your sales volume.
How merchant cash works
Merchant cash is always structured so that startups can access loans and repay them once their business starts selling. The repayment method is often structured in two different ways:
- A percentage of debit or credit card sales
This repayment method is beneficial for startups because it doesn’t require them to make fixed monthly payments. Instead, they can repay the loan based on their sales volume, which gives more flexibility. Therefore, the higher your sales, the faster you can repay the loan.
- A fixed daily or weekly withdrawal
This repayment method is good for startups with a consistent sales volume. In this case, the lender will make a fixed withdrawal from your business bank account regardless of how your business performs. However, this can have its downside if your business is going through a slow period.
Fees structure in MCAs
The fees and interest rates in MCAs are often higher than traditional loans because they are considered high-risk loans. However, this doesn’t mean they are not worth considering if you own a startup roofing company. Merchant cash advances can be a good option because they offer quick access to capital and flexible repayment terms.
The companies will charge the fees based on a factor rate which is often between 1.1 to 1.5%. So, if you borrow $100,000, you would have to repay $110,000 to $150,000. In addition to the factor rate, other fees may be charged, such as an origination fee, which is usually a percentage of the loan amount.
Features of MCAs
There are a few things that you should know about MCAs before you decide if it is the right option for your startup roofing company. But generally, the loan will depend on your cash flow and not your credit score. This means that even if you have bad credit, you may still be able to get a Merchant Cash Advance.
Here are some of the major features:
- A factor rate between 1.1 to 1.5%
- The payment period of three months and up to two years, depending on your sales volume and repayment structure.
- The principal amount of between $5,000 and $500,000 and an origination fee of between 0-15%
- A five to 20% deduction of your daily credit card sales.
Pros of merchant cash
- Fast funding – Merchant cash advances are one of the quickest ways to get funding for your business. The entire process can take as little as 24 hours from application to funding.
- Flexible repayment – As we mentioned earlier, the repayment terms are flexible, which can be helpful if your business is going through a slow period.
- No collateral – Merchant cash advances do not require any collateral, making them less risky for startups.
Cons of merchant cash advances
- High fees – The fees and interest rates are often high, making it difficult to repay the loan.
- Unfavorable repayment terms – While the flexible repayment terms can be helpful, they can also be a downside if your business is going through a slow period. This is because you will still be required to make the fixed daily or weekly payments, which can strain your business.
- No incentives for early repayments – Unlike traditional loans with interest, there are no incentives if you repay your dues early. This is because of the fixed rates.
Uses of MCAs
There are a few different ways that you can use MCAs. The most common way includes the following:
- Working capital can be used for inventory, marketing, or expansion.
- To consolidate debt. This can be helpful if you have high-interest debt, such as credit cards.
- To cover unexpected expenses such as repairs or replacements.
- To take advantage of opportunities such as a new project or a sale.
- Purchase inventory in bulk to get a discount.
Conclusion
Regardless of the changes in the roofing industry, funding for start-up roofers, or roofing companies looking to expand their small business is still within reach. As discussed in this article, you can look for crowdfunding options, take bank or SBA loans, equity financing, or self-fund your business. As an entrepreneur, you should do whatever it takes to secure funding for your business venture and be diligent about planning for future growth and profitability.
