The electrician industry grew in the past year, and future projections mention this trend to continue to grow well into the future.
With an added expansion in business comes an increase in funds. That’s where companies start to look for small business loans. Contracting businesses, specifically electrical contractors, often need working capital due to the nature of their work and the way they get paid.
Acquiring small business financing to help run your electrical contractor operations is essential to balance multiple jobs. Whether you want to purchase supplies or meet payroll expenses, electrical business loans are key to accomplishing your goals when upgrading your business.
Traditional bank loans are challenging for many small electrical businesses because of stricter requirements. Luckily, various loan options exist to provide funding to your electrician business. Read on to find out the type of electrician business loans available in the marketplace.
7 Best Financing Options for Electrical Contractors
There are many financing options that electricians can use for their business. But finding the right one that works for your electrician business may take some time and guidance. That’s why we compiled these seven best business financing options for electricians. Each of these electric business loans offers unique benefits that may work best for your business based on your need.
Read on to find out which one suits you best!
1. Long-Term Small Business Loans for Electricians
These loans are considered the most desirable as they offer the most extended terms for repayment, typically ranging between two to seven years.
Long-term loans are a lump sum offered upfront with an interest rate of 7%, with monthly payments over a fixed period to repay. Keep in mind that this type of business loan requires high credit scores. It’s mainly aimed at established electricians who have been at least two years in business.
You also have to fill out extensive paperwork, which involves a serious commitment on your part to provide all necessary documents for approval.
Benefits Include:
- Low-interest rate
- Term loans from 2 to 7 years
- Accommodates a more significant loan amount
- Monthly payments
2. Short-Term Business Loans
Short-term business loans provide a fixed amount of money, with a fixed cost with a repayment term from six to 18 months.
This type of loan is easier to acquire since the standards are lower for approval than a traditional long-term loan financing for electricians. Short-term loans are also considered bad credit business loans that help businesses with poor credit scores earn funding.
Benefits include:
- Approves both good and bad credit scores
- Low monthly/annual revenue requirements
- Easy process, an electrician doesn’t have to wait for months to obtain funding
3. Business Line of Credit
Unlike a short-term loan, a business credit line has flexibility. It operates like a credit card and allows you to draw out your required amount.
With a business line of credit, you also only pay principal and interest on your outstanding balance. It provides a working capital funding solution and is an excellent option for electricians with cash flow problems that result from unpaid invoices.
Benefits include:
- The flexibility of drawing out money when needed
- Only pay interest on the outstanding principal balance
- Lower costs and fees than other loans
- Monthly or weekly payments depending on the lender.
4. Merchant Cash Advance for an Electrical Contracting Business
A merchant cash advance is a funding option that provides you with an upfront sum of money in exchange for a fixed percentage of your businesses’ future sales.
Repayment is typically made daily or weekly. Either ACH payments are auto deducted from your business’s bank account, or the percentage is taken out of your future credit card sales until you meet your payback obligation.
You are given a fixed amount and should pay back a more significant amount through a fixed percentage of future sales. The estimated time to repay is from 6 to 18 months, but there are no term limits since the repayment is entirely based on future sales.
Benefits include:
- Flexible repayment terms based on future sales
- Excellent to poor credit scores
- Immediate cash on hand
5. Equipment Financing for Electrical Contractors
You can use an equipment loan to purchase specific equipment that will be considered collateral. An equipment loan or financing is usually available as a lease to buy or a fixed-term loan.
You can benefit from this type of financing when you want to save money on rent.
Benefits include:
- Minimal paperwork
- Instant funding
- Extended repayment terms from 12 months to five years
- Affordable monthly payment option for electricians who aren’t top earners yet
6. Small Business Administration (SBA) Loans
The United States Small Business Administration administers SBA loans through approved lenders. This federal agency sets the guidelines that SBA lenders must follow to ensure the legitimacy of the loan.
SBA partners with lenders to provide loans to businesses, so it doesn’t offer you cash directly. This loan provides long-term, fixed interest rate financing at desirable rates and terms.
Although popular among electricians, the process for SBA approval is lengthy, with extensive paperwork involving a business plan, possible collateral, and high credit scores. Electricians who use this type of loan mainly want to invest in significant business expansion projects.
Benefits include:
- Moderate interest rates from 4 to 7%
- Terms from three to 25 years
- Attractive repayment terms
7. Invoice Factoring / Financing for Electrical Contractors
Factoring and Invoice Discounting can provide electrical business owners with cash for their unpaid invoices within 24 hours.
Electrical contractors take on large projects but often don’t get paid until the project is done and final inspections have been completed. Prepayments are rarely or never made. That’s a long time to wait for your money.
This is where invoice factoring can help. Invoice factoring/financing works by purchasing your past-due invoices at a discount (usually 80% of face value). Electrical contractors and other businesses can use these funds immediately to buy materials and continue job development.
Benefits include:
- Quick access to funding
- No payments or long-term debt obligations
- Provision of money isn’t based on what’s in your business bank account
Why Get an Electrical Business Loan?
To keep up in the electrical contracting industry, electrical companies should consider getting a business loan for the following benefits:
- Solving cash flow problems and receiving funding for working capital such as for building materials, and equipment purchases
- Funding options like equipment financing allows electricians to own their equipment
- Hiring a professional team, paying their respectable salaries, and training them on the latest technologies
- Eliminating payroll problems
If you have access to a broad range of funding options, you can gain the freedom to make sound decisions regarding your finances and eliminate related issues. At Select Funding, we can provide you with a suitable electrician business loan you need to gain access to your funds quickly.
