In today’s economic climate, keeping up with the rising cost of materials and equipment has been a struggle for landscape contractors. For many, that’s where financing enters the fray. It can also make larger jobs more easily available as financiers take on the upfront costs and allow for repayment once completed.
Janna Bradley, COO and co-founder of Landscape Management Network (LMN), and Jacob Olins, vice president of financial services at WorkWave, share their perspective as software providers with financing options on what landscape contractors need to know when preparing to make financing decisions.
Know before you go
Bradley and Olins both say the most important thing a contractor needs to have a successful and seamless financing process is preparation. That starts with knowing what you want to finance and why.
“Before engaging with financers, take inventory of a few key items related to your business,” Bradley says. “First and foremost, ask yourself exactly why you need financing. Why do you need financing, and what benefits will it bring to the business?”
Once a contractor has nailed down that information, gathering the numbers is the next step.
“Have a detailed understanding of your current financials, including budget information, outstanding debt and credit. Make sure you have all of your financial information ready to go,” says Bradley.
After preapproval, she adds that the lender will likely ask for the following information:
- Profit and loss statements for several years and year-to-date.
- Balance sheets.
- Cash flow statements.
- Booked backlog.
- Aging accounts receivables and payables.
- Guarantor’s tax returns.
- A schedule of owned assets (equipment and real estate).
- Contingent liabilities for the guarantors.
Olins adds that software like WorkWave’s RealGreen and LMN help landscape contractors gather that information in a simple and easy-to-understand way.
“We’re able to be aware of all of what the contractor has going on and provide that narrative to the financier on the contractor’s behalf,” he says. “They don’t have to spend time pulling together their business’ case because it’s already built. We can show the history of sales, the average ticket and how the business has grown.”
Hidden gems
Another benefit of business software, according to Olins, is its ability to harness information to bring financing opportunities to businesses that financiers may have overlooked in the past.
He calls these businesses “hidden prime” borrowers, or in other words, diamonds in the rough.
“Software programs can help scale those profiles and help lenders identify creditworthy businesses they might not have found through traditional means,” Olins says. “They might not have great FICO scores, but their business metrics tell a completely different story. That’s the power of a software-led financing model.”
The future of financing
As the economy has continued to fluctuate, Bradley says new forms of financing have become important for contractors. One of the most important for maintenance and design/build contractors, she says, is project-cost financing.
In project-cost financing, financers pay costs upfront with repayment terms that match the project billing cycle. This approach, Bradley adds, provides landscape contractors with a shorter-term alternative to traditional financing, allowing for the continued growth of the business.
“It’s a huge benefit with material payments, which often represent up to 50 percent of a contractor’s total costs,” she says. “Instead of paying in cash or maxing out a line of credit, they can finance an entire purchase through a third party and then make weekly or monthly payments until they receive payment from their customer.”
