Navigating the World of Commercial Lending

When attempting to acquire financing for a startup plumbing firm, here are tips to consider to help the process go smoothly

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If you’re setting down the path of starting your own plumbing business, there is already a lot on your mind. Dealing with just the commercial lending aspect of it all can be overwhelming.

Here’s a checklist to keep in mind so that you can get through that step of your entrepreneurial journey as smoothly as possible:

1. Have your personal finances in order.

Commercial lending decisions are often based on how individuals handle their personal finances. A solid payment history shows that you paid your bills in the past and you’re likely to pay your bills in the future. 

2. Supply references.

Commercial lenders may ask for references. They want to hear from people who know you, know your character, and know the quality of your work.

3. Contribute equity.

Lenders don’t want to be the only player in a new business venture. For example, if you want to borrow $100,000, a lender may ask you to contribute $20,000 to $25,000 of cash, equity in your home, a gift from your family, or a combination of these.

4. Have cash on hand.

It’s a good idea to have extra cash on hand if the business doesn’t take off like expected. Extra cash also will help your business survive a slow period.

5. Be ready with collateral.

A commercial lender will usually ask you to pledge collateral to cover your financial obligations if there’s a shortfall. Collateral could be the assets in your home, a personal vehicle, vacation property, investment accounts, or cash. Be aware that personal and business assets are closely related for startup companies.

6. Determine what you can afford.

A business plan can help you determine how much cash you need to get started and what you can afford to repay. When developing a business plan, it’s smart to talk with a business consultant, experienced plumbers, accountants, and lenders. 

7. Know the cost of capital.

Work with your lender to determine the best interest rate and term for your loan. Also, ask the lender for a written proposal of the fees associated with borrowing. Fees vary by loan size and financial institution. In addition to an application fee, you may also be charged third-party fees for appraisals, title work, insurance, legal documents, and recording fees. The Small Business Administration also charges a fee on its SBA loans. 

8. Understand commercial mortgages.

Understand your rates, terms, fees, and how the process works to renew the note when the time comes. 

9. Develop a solid relationship.

Find a lender who’s a good fit not just today but also 10 years down the road. You want a good, long-term relationship to develop for both you and your lender.

For more information on acquiring financing for a startup company, check out this article featured in the May 2019 issue of Plumber magazine: Finding a Financing Option for Your Company.


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