Business Loans For HVAC Companies

It’s hard to imagine modern life without the benefit of the work done by the HVAC industry. HVAC companies (HVAC refers to heating, ventilation and air conditioning) are tasked with keeping us warm in the winter, cool in the summer, and breathing safely as we live our lives in the archipelago of enclosed spaces that comprises our indoor universe.

With the economy in a period of expansion, demand for new construction has risen, and where the construction industry goes, so goes HVAC work. After all, these new offices, homes, and transportation systems aren’t going to keep themselves ventilated and comfortable.

As with any industry, HVAC companies have their own particular financing needs. There’s no shortage of loan products out there, offered by banks, online lenders, credit card issuers, and even the federal government. But you probably knew that already. The question most relevant to you is: Which types of loans best fit the specific financing needs you’re going to have in the course of operating your HVAC business?

That’s where Merchant Maverick comes in. We’ll help make sense of the lending market for you and direct you to the loan products that best fit your specific needs. Let’s get down to the nitty-gritty and delve into how to get a business loan for an HVAC company.

Loans For Marketing & Advertising

Whether your HVAC company is just finding its legs and seeking to generate new leads or is established but working to expand, marketing and advertising are integral to an HVAC business’s success. Of course, such a campaign costs money, and the funds need to come from somewhere.

While we’re not here to tell you how to run your marketing campaign, here’s a quick tip: Reach out to people just before summer and winter begin. It’s when your services will be most in demand — for obvious reasons!

Medium-Term Loans

A medium-term loan is an installment loan (a loan that is repaid periodically over a defined period of time with interest) with a term length of between two and five years. You can typically borrow more with a medium-term loan, but if your anticipated marketing campaign won’t cost that much, a short-term loan would be appropriate.

A medium-term loan can obviously be used for any business purpose. However, since you should be able to more accurately estimate the cost of your marketing campaign than many other types of business expenses, a loan in which you borrow a specific amount of money is particularly appropriate here.

Recommended Option: Fundation

Founded in 2011, Fundation has since become one of the leading “alternative” lenders, boasting competitive rates, a solid reputation, and fixed-rate pricing (the interest rate will not increase over the life of the loan). Fundation’s term loans max out at $500K; accordingly, Fundation’s borrower qualifications are stricter than those of many online lenders. Fundation also offers lines of credit of up to $100K.

Fundation’s installment loans are offered with terms of one to four years and are fixed-rate, meaning the assigned interest rate will remain unchanged over the life of the loan. Additionally, Fundation sports a rapid time-to-funding, typically between two and seven days.

Loans For Equipment Purchasing

The HVAC industry relies on heavy equipment — the bigger the building, the heavier the equipment. Of course, these heating and cooling systems don’t come cheap. While any loan products can be used to cover the cost of purchasing HVAC equipment, there’s one type of loan tailored for this purpose: Equipment loans.

Equipment Loans

In many ways, an equipment loan resembles a traditional installment loan — you’ll be paying down the principal plus interest with monthly payments. The advantage of the equipment loan is that the equipment you purchase with the funds serves as collateral. Equipment loans are therefore secured loans, and secured loans typically have better rates and terms than their unsecured counterparts.

With an equipment loan, the lender usually covers most of the cost of purchasing the equipment, leaving around 10% to 20% to be covered by you. On occasion, however, the lender might be willing to cover the entire cost.

Equipment Leases

An equipment lease is another means of equipment financing. Such leases fall into one of two categories: Capital leases and operating leases.

With a capital lease, you are considered to be the owner of the equipment in question, so the arrangement resembles a loan in many ways. You make your monthly payments throughout the course of the lease. Afterward, you pay a small residual to close your account.

An operating lease lets you essentially rent the equipment during the lease, making monthly payments. When the lease ends, you can either return the equipment or buy it at fair market value, giving you a nice degree of flexibility.

See our article on equipment loans vs equipment leases for more information.

Recommended Option: Lendio

Lendio isn’t your typical lender. In fact, Lendio isn’t a direct lender at all. Lendio is a loan aggregator, which means that you submit a single loan application which Lendio then passes on to multiple lenders, saving you time and effort. Within about three days of submitting your application, you should be fielding multiple equipment financing offers.

Through Lendio, you can find an equipment loan as large as $5 million, with loan terms ranging from one to five years and interest rates as low as 7.5% for highly qualified borrowers.

Loans For Business Expansion

Let’s say your HVAC company has been thriving and is ready to expand to meet the challenges of our glorious future of relentless climate extremes. Without an infusion of cash, however, your expansion plans may not be feasible. If you’re looking for a sizable loan at a reasonable interest rate, consider an SBA loan.

SBA Loans

The Small Business Administration (SBA) is an agency of the federal government meant to assist small businesses in obtaining funding. For the most part, the SBA does not lend directly to businesses. Rather, it guarantees up to 85% of loans offered by SBA-approved lenders. These lenders are known as intermediaries.

While SBA loans feature competitive rates and terms, be warned that borrower requirements tend to be rather stringent.

Here’s a rundown of four of the main SBA loan programs with links to articles describing the programs in greater detail.

Recommended Option: SmartBiz

There is no shortage of SBA-approved lenders out there. However, if you’re looking to grow your HVAC business with an SBA loan, you might find the complex SBA application process to be intimidating and fraught with peril. The beauty of SmartBiz is that the company helps simplify and streamline the application process for you so that you can make sense of it all.

SmartBiz is not a lender. Describing themselves as the “white knight in small business lending,” SmartBiz will match you with an SBA-approved lender after helping you through the onerous application process. You’ll need to have at least two years of business history behind you and a personal credit score of at least 650, but if you meet these and other requirements, you can get an SBA-backed loan of up to $350,000 with interest rates between 8% and 9%. Not too shabby!

Loans For Emergency Funds

Let’s say the construction industry takes a downturn, leaving you with less business. You still have employees to pay and expenses to cover. How should a company in your position deal with unexpected cash flow problems? When you need a flexible funding solution you can draw from on an as-needed basis, consider a business credit card.

Business Credit Cards

As business credit cards tend to feature higher interest rates than business loans, they aren’t an ideal funding mechanism in many instances. But when unexpected situations arise and you need a stop-gap measure to temporarily plug some funding holes, there’s nothing like the ease and convenience of a business credit card. With the right card, you can cover emergencies while earning rewards and/or cash back along the way.

A good credit history will help you get lower interest rates and a higher credit limit. However, even with a less-than-stellar credit history, there are options available to you, including secured credit cards, which require a security deposit.

If you’re unsure of your credit score, whatever you do, don’t pay for a credit check. Here are some websites that let you check your credit score for free.

Recommended Option: Chase Ink Business Unlimited

The Chase Ink Business Unlimited card is a great way to cover those unexpected expenses while earning 1.5% cash back to boot. If you’re using a credit card to cover emergencies, you’re probably not looking for a card with rotating cash back spending categories or lavish travel benefits. The Ink Business Unlimited comes without these extraneous distractions so you can focus on getting your HVAC business out of a jam while earning cash back on everything you buy.

Keep in mind that you’ll need good to excellent credit to qualify for the Ink Business Unlimited. If your credit doesn’t fit that description, check out these options for business owners with poor credit.

Loans For Working Capital

Working capital refers to the money you use to keep your business running on a day-to-day basis. When times are good, your cash flow should be sufficient to keep your company running smoothly. The problem is that without extraordinary luck, times will not always be good, particularly in a field prone to seasonal slow-downs like the HVAC industry.

When seeking a loan for this purpose, you’ll want something that affords you a high degree of flexibility in terms of what you can spend your funds on. For this reason, a short-term loan may be worth your consideration.

Short-Term Loans

A short-term loan is an installment loan that must be repaid within 12 months or less. Payments must be made on a weekly or even daily basis and are normally deducted automatically from your business account. If approved, you can usually get your funds within a few days. Short-term loans are all about fast money, both in terms of getting the money and paying it back.

Instead of charging interest on what you borrow, short-term lenders charge you a flat fee known as a factor rate. This factor rate is a multiplier that determines the lender’s fee. I’ll give an example: Take out a $50,000 loan at a 1.2 factor rate, and you’ll be paying $60K for the loan over the agreed-upon term length.

Recommended Option: PayPal LoanBuilder

PayPal’s LoanBuilder is what the name suggests. You essentially build your own loan by customizing its elements to fit your particular situation. The loans offered range from $5K to $500K and term lengths run from 13 to 52 weeks.

LoanBuilder’s lender requirements aren’t terribly strict. Your business must have been running for at least 9 months. Your annual revenue must be at least $42,000 and your personal credit score must be at least 550. As ever, your credit history and your company’s overall health will determine your maximum borrowing amount and your rates.

Loans For Covering Payroll

Heating and cooling systems don’t install themselves. To ensure that our apartments, workplaces, and shopping centers don’t become unlivable nasty hellscapes, an HVAC business needs workers. Workers need to be hired, trained, and paid, all of which costs money.

If you need help hiring new employees (or paying the ones you already have), consider a line of credit.

Lines Of Credit

A line of credit operates on the same principle as a credit card. Instead of receiving a lump sum of dinero all at once, you’re given a credit line you can draw from whenever you feel the need. As with a credit card, you’ll have a credit limit to contend with, and you pay fees and interest only on the funds you use, not the total amount of the line of credit.

Recommended Option: OnDeck

If you need funding quickly, consider a line of credit from OnDeck. Approval should come in a matter of days, and the credit requirements are not particularly strict. Your credit line can run anywhere from $6K to $100K.

One thing to keep in mind about OnDeck’s lines of credit is that they are a short-term funding mechanism, lasting only about 6 months.

What To Consider When Choosing A Lender

For business owners seeking a loan, there has never been a wider array of funding options. To help narrow down your search, consider the following questions.

Why Do I Need A Loan?

Before you can even start looking at particular options, you need to be certain of the purpose of your loan. Whether you’re looking to expand your business or purchase new equipment, only by defining your precise need can you select a loan product that fits what you seek to accomplish. Otherwise, you’re flying blind without any point of reference.

No one lender or loan makes sense for every business need under the sun. Know what it is that you need and shop accordingly!

Am I Qualified?

There’s no need to examine a lender in detail if you won’t qualify for its loans in the first place. Try to find and examine a lender’s minimum qualifications before going through the terms and fees with a fine-toothed comb.

Vendors of business loans nearly always inquire about your time in business, credit rating, and revenue. On each of these measures, the lender may have a strict cutoff point where, if you don’t meet the benchmark, you don’t qualify. Alternately, they may just use this information to determine your rates. Either way, it’s information you’ll need to provide.

Do The Rates & Terms Meet My Needs?

It’s obviously important to consider a lender’s rates and terms when deciding on what loan to pursue. Make sure you can afford the funding; nothing will give you nightmares like taking out a loan you can’t repay. However, a lender’s reputation and business practices are equally important. To get a sense of just how a lender treats its customers, try to find user feedback on the company in question wherever you can. Read enough reviews (we do business loan reviews, you know!) and borrower feedback and you’ll get a pretty good idea as to whether the lender is an honest broker or a predator fixing to bleed you dry.

What You Need To Apply For HVAC Business Loans

The number of documents you’ll have to round up depends on the lender. Naturally, you’ll need the basics — name, business name, address, telephone number, email address, social security number, and federal tax ID number. Many lenders will require much more, however. Here are some documents you should be prepared to submit, depending on the lender:

• Business & Personal Credit Reports/Score
• Business & Personal Bank Statements
• Business & Personal Tax Returns
• Profit & Loss Statements
• Balance Sheets
• Income Statements
• Business Licenses
• Business Owner Resumes
• A Business Plan

For a more thorough look at how to apply for a business loan, read our in-depth take on business loan requirements.

Final Thoughts

Now more than ever, we need the HVAC industry at the top of its game. As I write this, wind-driven fires have spread dangerously smoky air over large parts of my tinder-dry home state of California, and proper indoor ventilation is literally the last line of defense for many in the affected areas.

When seeking a loan for your HVAC company, do your due diligence, explore all your options, and get your documents in order. This should set you up nicely for getting the loan that paves the way for your success.