Funding: SBA and What Beats It

Jump to section

• Overview & contents
• i. Important Notice
• 1. Executive Summary
• 2. Why Most Roofing Companies Fail to Make Money
• 3. Insurance Is the Defining Cost
• 4. The Economics of One Roof
• 5. SWOT and Competitive Position
• 6. Customer Acquisition
• 7. Service Mix and the Commercial Question
• 8. Crews, Subcontractors and the Certificate Trap
• 9. Funding: SBA and What Beats It
• 10. Working Capital
• 11. The Five-Year Build and Its Gates
• 12. Licensing, Bonding and Compliance
• 13. People and Production
• 14. Financial Projections
• 15. Break-Even
• 16. Sensitivity and Scenarios
• 17. Risk Management
• 18. Implementation Timeline
• 19. Returns
• 20. Key Performance Indicators
• 21. Key Assumptions
• 22. Conclusion
• A. Appendix A: Consolidated Financial Summary
• B. Appendix B: Capital Schedules
• C. Appendix C: Funding and Debt Schedules
• D. Appendix D: Risk Register
• E. Appendix E: Glossary

The SBA products are the right answer for some of this business and the wrong answer for the part that matters most.

9.1 The SBA route

9.2 Three instruments that beat SBA debt for a roofer

Roofing has an unusual capital profile: very little fixed asset, very large and very fast-moving working capital. Total capital expenditure across five years is $736,000 against $6.42 million of Year 5 revenue. The instruments that fit that profile are not loans at all.

• Supplier trade credit — the most important facility in the business. Roofing distributors extend credit lines on materials, and materials are roughly 58.5 per cent of direct cost. This plan runs supplier terms from 30 days to 52 days, which by Year 5 funds $346,000 of materials at no interest cost. That is more working capital than the SBA 7(a) facility in this plan, obtained free, and it scales automatically with volume. Open accounts with two distributors in month one, pay to terms without exception, and request a line increase every time volume steps up.
• Consumer financing — gets you paid before the homeowner pays. Offering homeowner finance through a third-party lender does two things. It raises average ticket, because customers who finance choose higher-value options, and an architectural upgrade can add $1,500 to $3,000 to a job with minimal extra labor. And it collapses the collection cycle: the finance company funds the contractor in days while the homeowner repays over years. This plan takes financed jobs from 28.0 per cent to 55.0 per cent of replacements, cutting blended days sales outstanding from 19.8 to 10.7 days.
• Equipment finance — asset-backed, so available early. Trucks and trailers are financed against the asset rather than the borrower, which makes this accessible before any lender will consider unsecured credit. Used equipment in the first two years preserves the equity that working capital actually needs.

9.3 Sources and applications

Total funding of $1.13 million exceeds capital expenditure of $736,000 by $394,000. That difference funds the operating deficit across Years 1 and 2, when the business is below break-even by design, and services the interest on the debt that funds it.

9.4 Use of funds

9.5 Year 1 capital

9.6 Year 2 capital

9.7 Year 3 capital

9.8 Year 4 capital

9.9 Year 5 capital

9.10 Debt and cover

Cover is not meaningful in Years 1 and 2 because EBITDA is negative. It is 0.36 times in Year 3, 1.31 in Year 4 and 2.58 in Year 5. The SBA 7(a) requirement of 1.10 times is met from Year 4 onward, which is the year after the facility is drawn — a lender will therefore be underwriting the Year 4 forecast rather than a trading record, and should test the Year 3 gate conditions carefully before advancing.