How to Fund a Service Business

Starting or growing a service business costs money before it makes money. A plumbing company needs a van, tools, liability insurance, and a license before the first call comes in. An HVAC company looking to add two techs needs to cover their wages, a second vehicle, and additional equipment weeks before the new revenue shows up. Knowing how to finance a small business — and which funding opportunities actually fit a trades business — is what separates business owners who grow on their own terms from those who stall out waiting.

Accessing capital is one of the most common challenges small business owners face, especially in the early years. The good news is there are more options than most entrepreneurs realize: federal grants, small business loans, SBA-backed loans, equipment financing, and more. This guide covers what's available, who qualifies, and how to figure out which options make sense for where you are right now.

How Much Money Do You Need to Start a Business

Before you can figure out business funding for a small business startup, you need a realistic number. Most trades businesses underestimate startup costs because they focus on the obvious expenses and miss the ones that show up later.

For a residential service business, startup costs typically include:

• Vehicle — a used service van runs $15,000–40,000; new is $40,000–70,000
• Tools and equipment — varies widely by trade; HVAC equipment and refrigerant can run $5,000–20,000 for initial stock; plumbing tools $3,000–8,000
• Licenses and certifications — state contractor licenses, EPA 608 certification (HVAC), business registration
• Insurance — general liability and commercial auto; budget $2,000–6,000/year depending on state and trade
• Software and admin — FSM software, accounting software, phone system
• Working capital buffer — 3 months of operating expenses to cover the gap between starting work and getting paid

A realistic startup number for a solo-to-small operation in the trades is $30,000–80,000. If you're buying an existing business or franchise, that number goes up significantly.

Having a solid business plan before you approach any lender isn't optional — it's expected. Lenders use it to assess your eligibility requirements, evaluate your financial management approach, and determine how much investment capital you actually need. The SBA has a startup costs calculator that's worth running through before you apply for any loan program.

Small Business Grants

A grant is business funding you don't have to pay back. Small business grants are competitive and usually narrowly defined, but if you qualify, they're worth pursuing. Most grant programs are administered by government agencies, nonprofit organizations, or economic development bodies at the federal, state, or local level, and some corporate and private programs also provide grants to for-profit companies in specific industries.

Federal and state grant programs often give priority to certified businesses. If your business qualifies as minority-owned, woman-owned, veteran-owned, or disadvantaged, check whether you're eligible for the corresponding certifications — these open doors to grant programs that aren't available to every for-profit business:

• Minority Business Development Agency (MBDA) — resources and connections for minority-owned businesses, including those in underserved communities and Native American tribes
• SBA grants overview — federal grants including manufacturing and community development programs; the SBA also administers the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs for businesses involved in research and development, and SBIR applications must respond to a specific agency solicitation
• Small Business Development Centers (SBDC) — a national network with regional offices across the country offering free technical assistance, expert guidance, and help identifying grants in your state
• Grants.gov — federal grant search across all federal agencies, with deadlines listed for each grant opportunity. Applicants must register on the System for Award Management (SAM) before applying for federal grants.
• DOL workforce training grants — for businesses focused on workforce development and hiring
• USDA Rural Business Development Grants — supports rural business growth and generally targets businesses with 50 or fewer employees in rural communities
• Economic Development Administration (EDA) — supports economic development and business development in distressed communities through direct grants and programs
• State Trade Expansion Program (STEP) — SBA-administered grants that help small businesses enter export markets

Women-owned businesses have access to additional grant programs beyond the standard federal pool. The SBA's Office of Women's Business Ownership maintains a list of current programs and nonprofit grants available specifically to women entrepreneurs.

The best grant opportunities are often local — county economic development offices, chambers of commerce, and state workforce agencies run programs that get less competition than federal ones. Search your state's Department of Commerce website and ask your local SBDC what's available in your area. The U.S. Chamber of Commerce Foundation is one example of a commerce foundation that supports small-business resilience and preparedness programs. If your business is located in a declared disaster area, the SBA also offers disaster loan programs with favorable terms — worth checking if your region has been affected.

Even if you don't qualify for a specific grant, it's worth reaching out to the contracting officer. You can offer to subcontract on the project, or simply make yourself known for government contracting opportunities — when a future grant or contract aligns with your type of work, they'll think of you first. Some grant programs are also run by community organizations that promote entrepreneurship.

Tax Credits

Tax credits reduce what you owe — dollar for dollar — rather than just reducing taxable income. A few worth knowing about for service businesses:

Home office deduction. If you run your business out of a home office, the square footage used exclusively for business is deductible against mortgage, rent, utilities, insurance, internet, and repairs.

Work Opportunity Tax Credit (WOTC). A federal tax credit for hiring workers from targeted groups — veterans, long-term unemployed, ex-felons, and others. The credit ranges from $1,200 to $9,600 per eligible employee depending on the category. Details at IRS.gov.

Section 179 deduction. Lets you deduct the full cost of qualifying equipment and vehicles in the year you buy them rather than depreciating over time. Particularly valuable for service businesses buying vehicles or equipment. Your accountant can tell you whether a specific purchase qualifies.

Business Loans

For most small businesses, loans are the primary way to finance operations — whether you're starting out, buying equipment, hiring, or expanding. Here's what's available.

Small Business Administration (SBA) Loans

The Small Business Administration doesn't lend money directly — it provides loan guarantees on loans made by approved lenders, reducing lender risk and making banks more willing to extend credit to small businesses that might not qualify for conventional financing. SBA-backed loans typically come with low interest rates and longer repayment terms than conventional loans.

SBA loans can be used for working capital, buying equipment, expanding your business, purchasing a competitor, or refinancing existing business debt. There are three main types:

7(a) loans are the most common SBA loan program. They provide up to $5 million for working capital, equipment, real estate, and business acquisitions. Interest rates are capped and terms run up to 10 years for working capital or 25 years for real estate. Use this calculator to estimate monthly payments.

504 loans are specifically for major fixed assets — real estate and large equipment. Loans range from $125,000 up to $5.5 million. The structure involves the lender covering 50%, a Certified Development Company (CDC) covering 40%, and the borrower putting in 10%. Use this calculator for payment estimates.

Microloans provide $500–$50,000 as direct loans for small businesses and startups that may not qualify for larger programs. Often used for equipment, inventory, and working capital. Particularly useful for a first-year trades business that needs a tool budget or initial inventory. Many microloan programs specifically support underserved communities and entrepreneurs from nonprofit corporations and community organizations.

You can learn more and find lenders through the SBA's funding programs page.

Traditional Bank Loans

A conventional small business loan from a bank is a good option if you have at least two years of business history and a solid credit score (typically 680+). These can cover equipment purchases, vehicles, commercial space, or working capital. Rates and terms vary — NerdWallet maintains a current list of bank loan options with estimated APRs and credit requirements.

Credit Union Loans

If your personal credit is in the 630–689 range, a credit union is worth exploring. They're member-owned, consider your full financial picture rather than just the credit score, and are more likely to approve borrowers a traditional bank would turn away. Rates are capped at 18%. NerdWallet's credit union loan guide has a comparison of current options.

Business Lines of Credit

A line of credit works like a business credit card — you draw from it when you need it and only pay interest on what you use. Lines typically range from $1,000 to $250,000. They're useful for managing cash flow between jobs, covering unexpected expenses, or bridging payroll during a slow stretch.

Eligibility requirements are generally stricter than a standard loan: most lenders want at least six months in business and $25,000 or more in annual revenue. FitSmallBusiness has a current comparison of line-of-credit options with current rates.

Equipment Financing

For trades businesses, equipment financing is often the most practical loan type. Equipment loans are secured by the equipment itself, which makes them easier to qualify for than unsecured loans and helps with reducing lender risk — the vehicle, HVAC unit, or tools serve as collateral.

This applies to:

• Service vans and work trucks
• HVAC equipment and refrigerant recovery machines
• Plumbing camera and jetting equipment
• Diagnostic tools and testing equipment

Rates typically run 4–20% depending on credit and the age of the equipment. Terms usually run 2–7 years. Most banks and credit unions offer equipment loans, and there are dedicated equipment financing companies that move faster with less documentation.

If you're buying a used van or major piece of equipment, ask the dealer whether they have financing relationships — many do and can process it in-house faster than a traditional lender.

Unsecured Working Capital Loans

These are small business loans that don't require collateral. Because the lender has no asset to claim if you default, the qualification bar is higher — good credit history and a demonstrated track record of revenue. Few restrictions on how the funds are used. NerdWallet's working capital loan list shows current options and minimum requirements.

Merchant Cash Advances

A merchant cash advance isn't technically a loan — it's an advance against your future revenue. The lender buys a percentage of your future sales at a discount and recoups it by taking a daily percentage of gross revenue until the advance is paid back.

For HVAC companies and other trades businesses with distinct slow seasons, this structure has a real advantage: when business slows down in the off-season, your daily repayment amount automatically shrinks because it's a percentage of sales rather than a fixed payment. When the busy season hits, you pay it down fast.

The tradeoff is cost — merchant cash advances are expensive compared to conventional loans, and the effective APR can be very high. Use them selectively and only when the revenue opportunity clearly outpaces the cost of the advance.

Requirements are minimal — a few months of bank statements and basic business documentation. If you process through Square, they have built-in financing options. NerdWallet's merchant cash advance comparison covers the major providers.

Business Credit Cards

A dedicated business credit card does two things: it makes expense tracking cleaner (your business spending is separated from personal), and it builds business credit that makes future loan applications easier.

Look for a card that matches how you actually spend. If you're putting a lot on fuel and vehicle maintenance, a card with gas rewards makes sense. If your biggest expenses are tools and supplies, find one with flat-rate cash back. Most major banks offer business cards with competitive sign-up bonuses — Doctor of Credit keeps current, detailed information on available cards and their terms to help you compare.

Pay the balance in full each month when possible. A business credit card that carries a balance at 20%+ APR is one of the most expensive ways to finance operations.

Choosing the Right Option

Most trades businesses use more than one financing type — an SBA loan to buy a second van, a line of credit for slow-season cash flow, and a business credit card for day-to-day expenses. The right combination depends on your credit history, how long you've been in business, and what you need the money for.

New funding opportunities come up regularly through federal agencies, state programs, and private companies that support small businesses — so it's worth checking in periodically, not just when you first start. Strong financial management makes every future application easier: lenders want to see clean books, a current business plan, and a clear picture of how the funds will be used.

If you're not sure where to start, your local Small Business Development Center (SBDC) offers free one-on-one advising and technical assistance. They can help you identify which options you're likely to qualify for, review your business plan, and point you toward grant programs and loans you might not find on your own — all at no cost. Figuring out how to finance a small business doesn't have to mean doing it alone.

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