Equipment Loans

There are many things to consider when you're looking to start your own commercial laundry business. You need to decide on your laundry equipment and what services you'll provide. You need to decide on a location, whether or not you need a few people on staff, and you’ll want to figure out how you're going to get everything up and running. But, before you even consider all of that, you need to know how you're going to pay to get your commercial laundry business off the ground.

The best solution to this problem would be to take out small business equipment loans. As a small business owner, you have two main options: a 7(a) loan or the 504 loan. Each are viable options for a new commercial laundry business, but be sure to do your homework before signing on the dotted line. Depending on your needs as a business owner, one option may be more suited for you than the other.

If you do your equipment loans research, you'll see that the 7(a) loan is used more frequently than a small business loan. This is most likely attributed to the fact that it can be used for more types of businesses. However, lenders tend to make more money off this type of loan and it creates more risk for the business owner. In addition, the 7(a) loan typically has higher loan fees, interest rates, and initial down payment. If you're starting your first commercial laundry business, this loan probably isn't for you.

That being said, there are numerous advantages to taking out 504 equipment loans:

Low down payment: If a borrower meets all the necessary criteria, a 504 equipment loan will only require a 10 percent down payment. This percentage can change, however, based on certain criteria, such as being a start-up business with no financial track record. In those instances, a down payment of 15, 20, or even 30 percent may be required for the loan. Once you've started up your commercial laundry business and have decent cash flow, you should be able to take out more loans in the future with the original 10 percent down payment.

Longer term: a 504 loan is typically given a 20-year term. As a new commercial laundry business owner, this allows you to make smaller payments than what would be possible with another loan. Other lengths of term are available; be sure to clarify this with your lender based on your company's needs and choose what’s best for you.

Low fixed interest rates: Almost half of all 504 equipment loans are funded through a Certified Development Company (CDC). Although 50 percent of your loan is still subject to a variable interest rate (because it's a conventional loan from your lender), the part of your loan funded by the CDC has an extremely low interest rate that is fixed for 20 years. Many borrowers pay off the lender's portion of the loan first and are able to enjoy the CDC's lower interest rates for the remainder of their equipment loans.

Collateral: Unlike the 7(a) loan, which can hold a borrower's home and other assets as collateral, the 504 loan can only claim that which is being financed. The real estate and/or equipment being financed are held as collateral, nothing more.

Low loan fees: the 504 loan fees are miniscule, about 1 to 1.25 of the total loan. Since they are so small, the loan fees and the closing fees can be rolled into the amount of the loan if desired.

Transferrable: If you decide that the commercial laundry business isn't for you, you can transfer what's left of your 504 equipment loans to the new store owner. This is a significant option for any small business owner, especially if you need to sell your business quickly.

There are many factors that go into starting a commercial laundry business, but knowing how to finance your new adventure is half the battle. There are many things to consider when signing up for 504 equipment loans, so be sure to speak with a financial advisor and figure out what works best for you. The details of your commercial laundry business are very important, so be sure to do plenty of research before beginning your new adventure.