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Working Capital and Equipment Financing Solutions for HVAC

Running an HVAC business can be a lucrative career move. HVAC technicians are in high demand all year round; installing, servicing, and repairing air conditioning units during the summer season, heating units in the winter

Romi Levine
Romi Levine
February 20, 2019

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Getting financing as a general contractor isn't easy. Banks and traditional lenders tend to see general contractors as high-risk loan options. Banks are already reluctant to offer loans to small businesses, so when you're a general contractor, the odds are not in your favor.

Because HVAC installation and repair workers are in such high demand, HVAC businesses are seen as fairly low-risk borrowers by banks and online lenders. If you need a loan for working capital or HVAC equipment financing, you’ll probably be able to find plenty of options with reasonable interest rates.

How Much Do You Need to Start an HVAC Business?

If you're just beginning your HVAC business, you'll need some startup capital. HVAC equipment can be expensive, especially if you invest in high-quality items. It's worth it to spend more on your first HVAC equipment; for example, a top of the range vacuum pump will do the work of a lower-range vacuum pump in half the time, and with much less difficulty.

Your HVAC equipment, parts, and supplies can pile up. It’s a good idea to buy a van to transport all of your tools and supplies – but even a second-hand van can cost a lot. You'll probably need to find van financing to cover the expense of a van that's big enough and also reliable enough to meet your needs.

Other startup costs for an HVAC business are relatively low. You’ll need:

Why Do HVAC Businesses Need Working Capital?

Working capital is the lifeblood of each and every business. Costs that use working capital include:

It’s worth investing in your existing HVAC business to be able to boost your revenue and take advantage of all of the possibilities for better cash flow. You’ll need access to ongoing working capital to be able to expand your business. Here are a few ways to expand your HVAC business by using extra working capital:

How to Choose the Best Type of Financing for Your HVAC Business

If you’re looking for funding for your new or existing HVAC business, you have a few loan types to choose from. Your choice will depend on a few things:

The Best Types of Working Capital and Equipment Financing Loans for HVAC

Each one of these types of loans can be useful for HVAC businesses. The only issue is to identify which is the right loan for your purposes. With the above questions in mind, you can think about which of these loans is best for your HVAC business.

Business Loans

Business loans are flexible loans that can be suitable for working capital or equipment financing needs. You can find short-term business loans with terms of just a few months, and long-term loans with terms of up to 7 years, depending on the purpose of the loan. Business loans are usually unsecured, so the rate that you'll get depends largely on your business credit score, your average income over the past 6 months or 1 year, and how many years you've been in business. It can take up to several weeks for business loans to clear into your account, especially if you go through a traditional bank, so it's not a fast source of funding.

Equipment Financing

Equipment financing is a type of secured loan that uses your new equipment as collateral. As the name implies, it's ideal for buying new or refurbished HVAC equipment. Equipment financing is usually spread across a long term of a few years, with interest rates that are relatively low. Some equipment financing deals include the cost of maintaining your HVAC equipment, and others allow you to upgrade to cutting-edge HVAC tools within the loan framework. Equipment financing is offered by HVAC supplies dealers, online lenders, and some banks.

Auto Loans

Auto loans are best for funding a new or second-hand van for your HVAC equipment. You can get auto loans from online lenders or from van and car dealerships. Some dealerships offer 0% financing, but others ask for a high deposit and charge high interest rates, so always read the fine print. Because an auto loan is secured against your new van, you can qualify for reasonable terms even if you have poor credit. Generally, online lenders can process your auto loan in a few hours, while many dealerships will offer financing, sign the terms, and let you drive away with the new van all within an hour or two.

SBA Loan

Banks and online lenders offer SBA loans, which is a type of business loan that is backed by the government. Because the government promises to pay up to 85% of the loan if you should default on it, banks and other lenders are more willing to accept your application. Interest rates on SBA loans are usually lower, too. That said, it takes a long time – a month or more – to get the funds through from an SBA loan, and it's not easy to qualify for it. Since it takes so long to be accepted for an SBA loan, it's best for large purchases like equipment financing, rather than for working capital.

Business Line of Credit

This works like a cross between a business loan and a business credit card. Like a credit card, you'll be given a maximum credit limit, and you can borrow money up to that limit. But like a business loan, there’ll be a repayment term. The main difference is that once you’re approved for a particular loan amount, you don’t have to take out the entire amount in one go. You can withdraw it in smaller amounts, repay some of it, and then take out some more. You’ll only pay interest on the amount you’ve borrowed, not on your maximum loan amount. It’s ideal for working capital loans since you won't need to pay interest for money you aren't using. Banks and some online business lenders offer business line of credit loans.

Business Credit Cards

Every business needs a business credit card for emergencies, but just like with a personal credit card, it’s not a good idea to spend more than you can repay by the end of the next balance cycle. Credit cards have some of the highest interest rates around. You could use your business credit card to cover small gaps in your working capital, like if you expect that your client will pay their bill before you need to pay your credit card bill. But it’s not recommended to use it for large purchases or big working capital needs that you can’t pay off within the next month or two.

Invoice Factoring

Invoice factoring helps you get income from your accounts receivables. When you have invoices that haven't yet been paid, but you need the working capital right now, you can sell these open invoices at a discount to an invoice factoring lender. They will give you immediate funds, and then help you get your client to pay up. It's a fast way to access working capital and usually doesn't require a credit check, so it's ideal for someone who is just beginning an HVAC business and/or has a poor personal credit rating. However, you'll often be charged a fee according to how long it takes before the client pays up, so if your customer is very tardy, you could end up paying a lot in fees.

Personal Funds

If you just need a small amount of extra working capital to pay an unexpected tax bill, or you want to invest in your personal training, you might decide to fund it personally. This could mean tapping into your savings, remortgaging your home, taking out a personal loan, or borrowing some money from friends or family. Although this could seem like the simplest approach, it's risky to tie up too much of your personal income in your business. You'll risk losing your home if you can't keep up with repayments, or losing a friendship if something goes wrong with the loan. However, if you have excellent personal credit, you might be able to get better rates on a personal loan than a business loan. Online lenders, peer-to-peer lenders, and banks all offer personal loans. Online lenders can often process your application and clear the funds on the same business day, but peer to peer lenders can take a few days, and banks are notorious for taking up to a couple of weeks to approve a personal loan.

Where Should You Buy HVAC Equipment?

When it comes to buying your HVAC equipment, you have a few choices. Some HVAC businesses enter into a partnership with HVAC equipment brands like Goodman or Rheem. This might give you a small discount on their branded parts and equipment, but it also means that you’re obligated to buy their items even if you find another brand for a better price.

Thanks to internet shopping, it's now easy to compare prices and shipping options for HVAC equipment like vacuum pumps, air filtration systems, and transmission fluid exchangers. Although you can buy HVAC equipment on marketplaces like eBay and Amazon, it's not usually the best approach. You might not be able to pass on a manufacturer's warranty if you buy from a retail outlet since manufacturers often have a blanket rule about nullifying the warranty when an item is bought retail. You'll also miss out on the discounts that come from buying wholesale.

If you have an HVAC parts and equipment wholesaler near you, you might get the best deal by visiting in person and discussing your needs with the store owner. If you are regularly buying a certain volume of parts and supplies, you might be able to negotiate a discount. Plus, there's nothing that compares with the knowledge and support of a helpful wholesaler.

What Do You Need to Get Working Capital and Equipment Financing for HVAC?

It's important to begin by pointing out that every lender has their own requirements for eligibility. Before you apply for any kind of working capital or equipment financing, you should read the regulations very carefully and make sure that you are suitable for this loan option.

However, there are certain requirements that are almost universal, no matter what type of financing you apply for or which lender you approach. You’ll save yourself time if you gather together the relevant documents in advance and prepare yourself to answer some common questions.

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