Laundromat Business Loans: How to Get Financing for a Laundromat

How to Get a Business Loan for a Laundromat

• 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.^[1] 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.