Funding your first year – SBA, microloan or something else?

Launching an HVAC shop isn’t cheap. Between vehicles, tools and the license fees, it’s tempting to cash out your 401(k) or burn through personal credit cards. A better first move is to look at SBA-backed loans. Under the 7(a) program, lenders aren’t required to take collateral for loans up to $50,000 and can’t decline a loan over $50,000 solely because collateral is light. That makes these loans a lifeline for first-year owners who have more sweat equity than assets.

Microloans can also help; they are capped at $50k, come from community lenders and often include business mentoring. Be prepared to pledge available assets if you borrow more than $50k, and expect the lender to scrutinise your credit score and business plan. Don’t forget basic cash-flow hygiene: build at least three months of operating expenses in reserves before you quit your day job. If you don’t, you’ll be back on Reddit asking how to cover payroll.

A bank term loan or equipment lease can also work if you have strong personal credit. Whatever you choose, don’t fund your first year with merchant cash advances—no job margin can keep up with triple-digit APRs.