With 79% of commercial roofing contractors expecting significant sales increases in three years, the commercial roofing industry in the US is growing rapidly. Part of the growth comes from the demand for roofing replacement.
As the service and material costs in this industry increase, commercial building owners are considering multiple avenues for roof replacement financing. These financing sources help supplement their existing budget or cover the entire replacement costs.
A new roof can increase your building’s energy efficiency and keep the building’s occupants safe from harsh weather conditions. If you’d want to buy one for your commercial property, here are the financing options to consider:
Commercial Property Insurance
You can file a commercial property insurance claim if your roof suffers unexpected damage. Regardless of the damage, file the claim timely to speed up the compensation process.
Once you discover signs of roof damage, document it using pictures or videos. You should also have it thoroughly inspected by a roofing contractor.
File the claim with your insurer after documenting the damage. As the insurance company reviews the claim, you can carry out temporary roof repairs. These repairs may involve blocking off the damaged parts or installing a tarp on the roof.
Expect the insurance provider to send an adjuster to the property to assess the damage. This type of inspection will help determine the cause of the destruction. It also helps determine if the insurance policy covers the damage.
Your insurance provider will likely not cover damage caused by the roof’s age or by the property owner. They may also deny your claim if the damage stems from water leaks. However, water leaks caused by natural disasters are usually eligible.
Most commercial property insurance policies don’t cover fragile roofing materials. These materials may include slate roofs, metal roofs, and wood.
You will receive a particular compensation amount if the insurer approves your claim. The amount depends on the extent of damage to the roof. It may also reflect the cost of buying a new roof if there’s a need for one.
Commercial Equity Lines of Credit (CELOC)
A CELOC allows you to take credit against your equity in a commercial property. You can use the CELOC to expand your business, acquire new inventory or hire new talent. The line of credit can also help you finance property improvements like roof replacement.
CELOCs are similar to home equity lines of credit HELOCs which apply to residential properties. They require you to build equity in a real estate property and borrow money against it.
You can apply for a CELOC if you have a qualifying commercial property as an asset. Apply for it if you don’t have enough funds to make a huge purchase. The funds can help you sort out the financial emergency quickly.
But you must secure the line of credit against your commercial property. If you don’t repay it, the lender will take ownership of the asset. The lender may also take you to court for further damages.
Commercial equity lines of credit also come with variable interest rates. These variable rates can increase borrowing costs. The lender will demand proof of your business’s financial stability. They’ll also ask you to submit the property’s lease agreements or title deeds.
Your present and current credit scores and banking activities will help qualify you for the loan. You may qualify for higher loan limits if you are a low-risk borrower.
Like other loans, CELOCs have certain fees. These fees include application, appraisal, and origination fees.
Business Credit Card
A business credit card can help you settle a large financial emergency. It can also help your business track its spending.
Business credit cards boast higher credit lines, perks, and rewards. But the credit card issuer will ask you to assume responsibility for the debt if the business defaults. You may also not enjoy some of the protections consumers enjoy on credit cards.
You can turn to a business credit card that offers attractive welcome bonuses to cover the commercial roof cost. To redeem this bonus, you’ll have to meet certain spending thresholds. You may also earn rewards as you use the card for the roof purchases.
A credit card with zero percent introductory financing can help you finance commercial roof installation. Depending on the credit card issuer, the offer may last six months or two years. Either way, you get to enjoy zero interest rates within the qualifying period.
Business credit cards are convenient for shopping for building improvements. Several merchants allow them as a payment mode.
You can take advantage of the warranty protection on a credit card. The warranty may add an extra year to the existing warranty on the item you want to buy.
On the downside, business credit cards can affect your personal credit score. They accrue higher interest rates compared to consumer cards.
You may consider a personal loan to finance a commercial roof system. With this type of financing, you won’t have any restrictions/limits on how you spend the money. You also get the finances as a whole.
The interest rates and loan terms for personal loans depend on borrowers’ credit scores. You can find a lending option that matches your credit score.
Personal loans attract relatively lower interest rates than credit cards. The application process is straightforward, fast, and convenient. Shop around and compare loan offerings to get fair rates and loan terms.
Expect to fill out an application for the loan. In the application, the lender will want you to share your personal information and details about your financial health.
After reviewing your credit history, the lender will inform you about your application status. They will set an appropriate interest rate for you if you qualify. Expect them to inform you about the monthly payments. And if there are other loan fees, they will also mention them.
With this information, choose an ideal personal loan for the roof replacement. Look at the loan’s annual cost before making a decision. Some lenders have stricter eligibility requirements for personal loans. They also charge higher fees or penalties.
And if you are not careful, the loan may increase your total debt load. It may also affect your credit report and creditworthiness.
Unlike a personal loan, a business loan is ideal for business-related activities. You can take it to replace a roof in your commercial building. Get one from credit unions, banks, the Small Business Administration (SBA), and alternative lenders.
Credit unions and banks offer business loans with complex terms. The application process is also long and needs strong credit. But it is worth waiting if you want a large loan amount.
SBA targets small businesses with attractive lending solutions. The loans are more flexible compared to bank or credit union loans. Once you meet the requirements, which are quite demanding, you can qualify for a SBA loan.
You may turn to an alternative online lender for quick cash. But expect high-interest rates on this type of unsecured loan. Unlike banks and credit unions, alternative lenders also have flexible loan requirements for businesses.
Other business loans to consider include working capital loans, bad credit loans, and bridge loans. A working capital loan can cover your business expenses. You may use the funds to replace a roof if it can make your business profitable.
As the term suggests, a bad credit loan is ideal for borrowers with poor credit histories. It can also help a recently-opened business pay for urgent expenses.
You can take a bridge loan when you have a pending payment for a service or job. The loan can help you keep your cash flow afloat. You won’t have to stretch your budget when using it to replace a roof.
Hard Money Loan
Hard money loans are available to business owners who need funding but have poor credit histories. You can use your commercial building as collateral when taking this loan.
Hard money lenders usually expect you to repay the loan in a short time. They also set high-interest rates, which are frustrating to small businesses.
The lender will assess the current value of your property before giving out the loan. So, if you default, you risk losing the collateral.
Hard money loans have a lower LTV (loan-to-value) ratio. An LTV compares the loan amount to the collateral. Lenders use this metric to weigh the risk of issuing out loans.
The lending requirements for this type of financing are less transparent. It’s because there aren’t any regulations on hard money lending. As such, the borrowing risk is higher compared to other lending solutions.
Like other loans, you should shop around for a good deal. Also, review the loan terms before agreeing on anything. Seek clarification from the lender if you don’t understand certain terms and conditions of the loan.
Refinancing a Commercial Mortgage
Refinancing helps you take a new loan to replace an existing one. It’s a great way to get better loan terms, lower monthly payments, and make use of your equity on the commercial property.
You can use a loan refinance to renovate your commercial building. Funds from the refinance can also help you buy replacement materials such as roofs.
Refinancing your commercial building allows you to borrow tax-free funds. The lender can qualify you for a higher loan limit than you previously borrowed.
On the downside, expect to pay high upfront costs during closing. So, as you consider this option, weigh the upfront costs against the savings on the new loan.
Lenders place restrictions on the types of commercial properties that you can refinance. You’ll have to confirm with the lender about the restrictions. Refinancing may expose you to prepayment penalties. In particular, the SBA imposes prepayment penalties on loans paid off early.
Your refinancing options include government-supported refinance loans, conventional commercial refinance loans, and commercial cash-out refinance loans. A government-supported one requires you to have equity in a profitable business. You can find it from the USDA (Department of Agriculture) or the SBA.
Conventional commercial refinance loans are free of government support. You can apply for one from a mortgage lender or traditional bank. Either way, the new loan comes with a reduced loan term, a different interest type, and a different rate.
With a commercial cash-out refinance loan, you can borrow more money than your previous loan amount. The cash-out refinance has a higher loan-to-value ratio. But you need to have lots of equity in the commercial property.
With this type of financing, you can leverage a roofing contractor’s relationship with a lender. The partnership helps building owners access different loan packages when they want to buy a new commercial roof. But terms and conditions for qualifying apply here.
If you qualify, it can take a little time to get the funds. Depending on the lender’s application policies, you can even apply via phone or online.
Though contractor financing can help you access a loan, the loan comes with certain risks. So, you should review the terms, interest rates, and repayment schedule before applying.
Some roof loans come with a teaser rate to compel you to apply. Find out about the teaser period to know when it ends. You should also ask about the new rates that the lender charges afterward.
Interest rate comparison can help you settle on a good loan. As such, you should compare the contractor financing solution with other business or personal loans available.
Some roof contractors offer financing in-house (without partnering with a lender). If you consider them for roof replacement, inquire about the loan terms. Also, review the financing requirements to see if you qualify.
What’s Next After Roof Replacement Financing?
Roof replacement financing sources can help improve the safety, appeal, and comfort of your commercial building. While exploring each one, weigh the potential pros and cons. You should also review the return on investment and its financial implications on your business.
And if your commercial building needs roof restoration services, Yutzy Roofing Service is here to help. Our projects begin with a consultation to help you find the best roof systems and coatings. As we look forward to helping restore your roof, get a free quote today.