How to Get a Business Loan for a Laundromat
Starting a laundromat can be a great business opportunity. After all, people always need clean clothes, and in some big cities, few apartments have washers and dryers (New York, we’re looking at you!). If your area is similar, you could carve out a niche in your neighborhood with a laundromat. You’ll be providing a much-needed service and will avail yourself to plenty of repeat customers in return.
You might also be wondering how to get financing for a laundromat, given that there are plenty of up-front and recurring costs associated with operating one. For starters, you have tons of equipment costs whether you’re renting or buying machinery. There’s also the necessary maintenance expenses for keeping your fleet of washers and dryers running, lest you end up with too few machines to meet demand. Plus, if you want to stay competitive, you may need to pony up for customer perks, such as free detergent with every load.
The point is, these costs add up quickly—usually before your first client drops a quarter in a washing machine. Thankfully there are plenty of options available to you, whether you want to get financing for a laundromat of your own or need laundromat purchase financing to take over an existing business. Here are a few of the best options, depending on your needs.
What to Consider About Laundromat Financing
As with just about any business, there are a ton of factors that should influence how you get laundromat financing, and for which purposes. Some small business loans offer better terms than others, while some come with collateral options that others don’t. The point is, each of the laundromat business loans available to you are designed for specific goals. Knowing what to look for in your loan can help you make sure you’re getting the right one.
The Loan’s Purpose
Any time you borrow money, you should make sure you have an end goal and a purpose in mind. That’s true whether you need to borrow money to purchase equipment, expand your business, or even just for getting a little bit of help with operating expenses. Having an explicit purpose for taking out a loan isn’t just a sensible and responsible part of the process, it also helps lenders decide if you and your business are a good investment. After all, you’re borrowing their money—they want to make sure you have a good plan in mind for what you’re going to do with it.
What You Can Afford to Repay
Just because you may qualify for a big loan doesn’t mean you have enough money to pay it back. You may have a down month where money is tight, which makes it hard or impossible to make a payment. Or, alternatively, you may find that your cash flow is temporarily in trouble due to an unexpected repair. These scenarios happen often—particularly for laundromat owners who often find themselves repairing heavily used equipment. Be sure to only borrow as much as you know you can afford to pay back every month. Most lenders will evaluate your ability to pay before approving your loan, but it’s best to right-size your expectations before filling out an application.
Your Loan Application Materials
Each kind of small business loan requires different application materials. Some loans, such as SBA loans, require tons of background information about the applicant and their business. Other loans, like short-term loans, usually require little more than a credit check. You may find yourself working through a few different applications when looking for laundromat funding, so make your life easier by compiling as much information as possible up front.
The Best Business Loans for Laundromat Financing
Once you know why you need a loan, you can move on to evaluating the various forms of laundromat financing out there. The good news is that there are tons of options, many of which offer specific advantages for certain kinds of needs. Whether you’re trying to figure out how to get financing for a laundromat that’s brand-new, or how to secure laundromat purchase financing for an existing suds shop, you have plenty of ways to get the cash required to make it happen.
The Best General Business Loan for Laundromats: SBA Loan
A Small Business Administration loan is often seen as the best business loan around. This reputation is well-deserved, too. SBA loans are issued by lenders (typically small banks) and are guaranteed by the SBA for up to 85% of their value. So if a borrower defaults, the SBA offers a promise to cover 85% of the loan’s value. This means that lenders take on less risk when giving borrowers money, which translates into terms for applicants.
The benefits of SBA loans don’t stop at the 85% guarantee, either. These loans can go up to $5.5 million for borrowers, and can be repaid for up to 25 years. If that weren’t enough, these loans also come with some of the lowest interest rates around—typically a fraction of what you’d pay with a regular term loan (and a sliver of what a medium- or short-term lender would charge).
SBA loans come in a few different varieties. The SBA 7(a) loan program gives borrowers a ton of flexibility with regard to how they use the loan’s value. Borrowers can use SBA 7(a) loans to refinance old loans, provide working capital, or other goals. Alternatively, if you’re looking to buy a storefront for your laundromat, you’d be better suited with an SBA 504/CDC loan, which is designed specifically to help borrowers buy large fixed assets like commercial real estate. These are the two SBA loan programs most likely to help with laundromat business financing, but there are a few other loan types.
There’s a downside to SBA loans, though. You’ll need to have exemplary credit in order to qualify in most cases. This means a credit score of 680 or higher gives you a stronger chance at having your application approved. You will also want to have a few years in business under your belt, plus solid revenue and financials.
Another All-Purpose Laundromat Financing Option: Term Loan
If an SBA 7(a) loan sounds like a great option for you, but you don’t have the financial bona fides to get approved, then a term loan might be the way forward. Term loans are structured similarly to 7(a) loans with regard to their use, repayment terms, and sums of money. You still get near-immediate access to the funds once you’re approved, and you can spend it on your business however you see fit.
Term loans are probably the first thing that comes to mind when you think of a conventional small business loan, and that’s precisely what they are. So long as you’re in good financial standing, don’t owe too much money to other lenders, and can show that your business is making money, you’re well positioned to get approved.
There’s a downside to term loans, however. Your interest rate won’t be nearly as low as it would be with an SBA loan. Lenders take on more risk when letting businesses borrow money on their own, as opposed to doing so with the SBA guaranteeing most of the loan’s value in the event that a business can’t pay. This translates into a higher interest rate, smaller loan totals, and faster repayment timelines. This is particularly true of medium- and short-term loans, which can require daily and weekly payments—with double-digit interest rates—depending on your loan.
The Best Business Loan for Funding Laundromat Supplies: Equipment Financing
Whether you’re opening a new laundromat or keeping your shop in working order, you’re likely to have to shell out some serious money on equipment and machinery. Your washing machines and dryers are going to be running all day long, which makes them susceptible to breakdowns and repairs. If things get really troublesome, you’ll have to purchase new machines, as well. All of these costs add up quickly, and it’s not always easy to pay for a quick replacement.
Thankfully, there’s a laundromat financing option out there made just for this kind of expense. Equipment financing helps small business owners get the money they need to purchase new and used equipment, all without requiring collateral or exemplary credit for approval. With this kind of loan, you can get the financing you need once you get a quote from a vendor and present it to your potential lender. The lender then provides you with the capital you need in order to purchase the machinery in question.
The best part of equipment financing loans are how they’re structured. Equipment financing is “self-collateralizing,” so the equipment you purchase with the loan serves as the collateral for the loan. For example, if you’re unable to continue making payments on a new high-volume washing machine, your lender will repossess the machine in lieu of keeping collateral.
The Best Business Loan for Everyday (and Unexpected) Expenses: Business Line of Credit
Laundromats come with a ton of regular and occasional expenses. Sometimes you can pay for these items with a business credit card. Other times, a credit card interest rate might be too high to make this method a viable option. In either case, a business line of credit offers another purchasing option that avails you to more cash than a credit card, and typically at a lower interest rate.
Business lines of credit are similar to credit cards in a few ways. Both offer you revolving access to cash, up to a certain amount for which you are approved once your loan application gets a green light. You can borrow against this sum of money throughout the life of the loan, taking out as much as you need all the while. You’ll pay interest on the money you’ve taken out at any given time, rather than the full amount of your loan. Plus, you can borrow again and again for as long as your line of credit is open.
A business line of credit works well for laundromat financing, since it’s a great option for making emergency purchases or paying for urgent repairs. It can also help you make quick purchases too—like, for example, if a competitor goes out of business and you can get new washing machines on the cheap. You have fast access to cash and don’t have to wait for a loan approval before swooping in and getting a deal.
Getting Financing for Your Laundromat
Whether you’re looking to finance a brand-new laundromat or purchase an existing business, there are a ton of loan options out there. So long as you know your business and personal credit scores, have a solid grip on your financials, and have a set purpose for your loan in mind, you can find a borrowing option that works best for your goals. You’ll have to get plenty of information together about your business, but you’ll be glad you did once you have access to the financing required to take your shop to the next level.
- Entrepreneur.com. “How to Start a Coin-Operated Laundry“