Business financing

5 Ways to Finance Your New Landscape Business

By Matthew Gillman

Small business owners often find it difficult to secure funding from traditional lenders due to the nature of their company. They either have no credit history, have not maintained a positive cash flow, or the income simply cannot sustain the required monthly loan repayment.

According to the Federal Reserve’s Small Business Credit Survey, 37% of small businesses submitted a loan application in 2020 despite difficulty securing a loan.

So why would a small business, including landscaping companies, need cash anyway? How can working capital help you grow your landscaping business?

Landscaping businesses need additional funding because they have large upfront costs. For example, if you’re starting a landscaping business from scratch, you’ll need to purchase equipment and materials, which can be expensive.

Additionally, if you’re expanding your existing business, you may need to invest in new machinery, open up a new office, or hire additional staff members. Those costs can quickly add up, and it may be challenging to cover them without capital.

If you need to finance your new landscape business, you have other options to get more capital. Let’s explore each option.

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1.      Invest in new tools and machinery with equipment financing

One of the best ways to grow your small business is to invest in new tools and machinery. Upgrading your equipment can help you become more efficient and productive, leading to a higher return on investment (ROI).

If your goal is to replace worn-out equipment or add new machinery to expand your service, equipment financing is the best solution for you. With equipment financing, you’re able to purchase much-needed equipment without having to pay upfront. The equipment you purchased will serve as your collateral, which the lender can rightfully take away from you if your loan defaults.

2.      Start a crowdfunding campaign

Crowdfunding allows you to raise capital without giving up equity in your company. This can be especially helpful when taking out a loan is not an option or if you are not interested in giving up any ownership of your landscaping business.

Crowdfunding is a viable option if your business is new and you want to test if there’s a market for it. It can also be a great way to generate interest and excitement about your landscaping business. When people invest in your business, they are more likely to tell their friends and family about it.

If you are considering crowdfunding for your small business, there are a few things to keep in mind:

  • First, make sure you have a strong marketing plan in place. You will need to generate interest in your campaign and get people to invest.
  • Second, be prepared to give away some equity in your company to attract investors.
  • Finally, make sure you have a solid business plan before launching. With careful planning and execution, crowdfunding can be a great way to finance your landscaping business.

3.      Apply for SBA loans

If you’re not in a rush and you want to secure government-backed financing, you can apply for an SBA loan. SBA loans are initiated by the Small Business Administration to support the long-term growth of small businesses.

The SBA doesn’t release the loan; instead, borrowers need to find SBA-accredited lenders who will release the loan for them. The SBA reduces the risk of loan defaults and helps you access working capital with low-interest rates and fees.

There are different types of SBA loans depending on the business’ purpose. Most landscaping business owners apply for an SBA 7(a) loan, which can be used for purchasing new equipment, paying employee salaries, or acquiring a new business.

4.      Improve cash flow with invoice factoring

With invoice factoring, businesses can sell their invoices to a third party (a factoring company) in exchange for immediate cash. It’s an excellent option for landscaping businesses waiting on payments from their customers.

Invoice factoring is not a loan but rather a sale of invoices. This means you don’t need monthly payments – the factoring company simply purchases the invoices at a discounted rate and collects the full amount when the customer pays them.

On top of that, invoice factoring can also help you improve your cash flow. With better cash flow, you can pay bills and suppliers on time, which can help build better credit ratings.

5.      Prepare for emergencies with a business line of credit

A business line of credit is a type of loan that provides you with a continuous flow of funds. This can be helpful for landscaping businesses because it allows them to borrow money as they need it instead of having to apply for a new loan every time they need cash.

With a credit line, you can borrow against your line of credit multiple times and pay it back with interest and fees. If you don’t need the funds now, you can keep your cash in the credit line and you won’t be charged a cent.

A line of credit is a good alternative financing source for landscaping businesses that may have difficulty securing a traditional loan. If you think this could be a good fit for your business, you can talk to a finance expert to know how you can get started.

Ready to finance your landscape business? Here are the documents you need to prepare

If you’re ready to seek capital and grow your landscaping business, we’ve gone ahead and compiled the most important requirements you need to prepare beforehand.

  • Business and personal credit scores. These scores determine the risk you pose to lenders. Good scores usually give you better rates and longer terms, while bad scores minimize your chance of getting approved for a loan.
  • Cash flow statement. Your cash flow statement tells the lender how money flows in and out of your business. Lenders want to know how you use your working capital and whether you’re making good investments or not.
  • Time in business. If you plan to apply for an SBA 7(a) loan, the minimum number of years you should be in business is two years. However, if your credit score is high, some lenders may lend you money even if your landscaping business is new.
  • Debt-to-income ratio. Your debt to income (DTI) ratio measures the percentage of your monthly income that goes toward paying your debts. This includes mortgage, car payment, student loans, credit card bills, and any other type of loan payment. Your DTI ratio is important because it gives lenders an idea of how well you can make debt payments.
  • Collateral. Collateral is an asset a borrower offers to a lender as security for a loan. The collateral gives the lender the right to seize the asset if the borrower defaults on the loan. This could be your equipment, invoices, mortgage, or any valuable property.
  • A solid business plan. Lenders are looking for a business plan to better understand your company and what you hope to achieve. Creating a comprehensive and well-thought-out business plan gives you the best chance at securing capital because it tells lenders how you will be making money in the future.

Whatever financing option you choose, make sure you shop around and compare rates before making any decisions. With careful planning and execution, you can ensure that your landscape business gets the funding it needs to be successful.

Matthew Gillman

Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.