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Dry Cleaner Business Loans

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How To Get a Loan For a Dry Cleaning Business

Dry cleaners are big business, generating combined nationwide revenues of $8.0 billion a year, with a compound annual growth rate of 3.4%. The profit margin on a dry cleaning shop is a whopping 150%, making this an attractive investment opportunity for many small business owners.

With an excellent return on investment and cash flow generating potential, now is the time to invest in a dry cleaning business. But if you’ve been thinking of opening a new dry cleaning shop, or expanding an existing operation, you might not have enough cash on hand to fund your plans. In which case, you’ll need to borrow.

If you already know that you need funding, you can apply online in just minutes. But if you’re not sure how much you need to borrow, what you can afford, or the best loan product for your business, read on. 

Top Considerations Before Applying for Dry Cleaning Financing

Before you can decide the type of loan you need, or how much money to borrow, think through the following considerations. They’ll help you borrow effectively and reach your business goals.

Are you an owner or are you looking to open a new dry cleaning store?

The type of funding you’ll need, the loan’s term, and the amounts will all vary depending on if you’re already in business or opening a new dry cleaner.

Existing business owners have a history of cash flows and income statements to show a bank when applying for financing. You also likely have a good idea of how you plan on using the funding – whether it’s expanding into a space next door or adding machines – and can demonstrate the increased revenues that will bring into your business. 

If you’re opening a new dry cleaner, you’ll need a robust business plan and strong cash flow projections when you apply for a loan. Banks will want to see how you plan on making money, the amount of capital expenditures involved in opening a new store, and when you’ll turn a profit. Newer small business owners, without a past track record of success, will find it harder to obtain a loan from traditional funding sources. 

Why do you need the funds? 

Opening a new dry cleaning store? Plan on leasing and possibly renovating a space, buying and installing machines, and paying utility bills. Renovating or expanding a new shopfront? You could face many of the same costs. 

Here are some of the most popular reasons dry cleaner take out small business loans

  • Purchase new equipment to replace old or broken machines
  • Expand into more space or open a new location
  • Add a wash and fold service
  • Cover operating expenses during lean times

How you intend to use the funds dictates the type of funding and term that best fits your business purposes.  

What can you afford to borrow? 

It’s important that your business’s cash flows cover the loan payments for your new project – particularly if there will be a delay between when you have to pay for the project and when it will generate revenues.

If you haven’t already, put together a business budget. After you’ve paid fixed expenses like rent, how much free cash flow do you have to make loan payments? If you can’t afford the loan payment on the amount of money you need to borrow, it’s wise to scale back your plans. 

After you’ve made a budget and seen that you can afford to borrow, include a plan to pay back the loan. And plan for contingencies. 

The construction company you hired to build out the new space doesn’t show up for a few days. The machines you bought are backordered. Make sure you have a fallback plan if anything is delayed. 

Will the project generate a profit? 

It’s not enough to know if adding a professional machine will generate another $14,000 a year in revenue – will it make a profit? If you have to take out a $40,000 loan to buy the machine, you’ve actually lost money. 

Any project you plan on using borrowed funds to complete should do more than cover the loan’s cost – it should also produce more income for your business in the long run. Evaluating a potential project can get quite complicated.  A simple expansion has many variables.

For example, the storefront next door has become empty and you have the opportunity to lease it and expand your space. Based on square footage, you could add one more machine at a cost of $40,000 with potential yearly revenues of $50,000. 

Your landlord is willing to give you a reduced rent because you’ve been a good tenant, so rent would be $2,000 for the expanded space. If you took out a loan for a three-year term at 10% interest, your monthly payment is around $1,300. Based on that, you’d have a $866 profit, right? 

Wrong. Running the additional machine will increase your electric bill. In the winter, you’d have to pay to heat the expanded space and in the summer customers may expect A/C. Don’t forget maintenance and repair costs if the machine breaks down. 

Before taking out a loan to fund a project, take the time to check if the project’s impact on your revenues will both pay back the loan and generate a profit. 

Establish the funding timeframe 

How long will you need to borrow? A loan’s term is the length of time you can take to repay the funds. As a rule of thumb, you don’t want to still be paying on a loan when you’re no longer receiving its benefits.

For example, let’s say you’re taking out a $50,000 loan to buy a new dry cleaning machine. The machine will be fully depreciated after three years. If you took out a five-year loan to finance the purchase, you would still be paying on the loan after the machine had no value (and already might need replacing).

For larger projects and capital investments, apply a matching principle. The funding’s term should expire when the project is done or its benefits have been realized. 

Maybe you need access to funds on a rolling basis – to cover payroll, help pay rent during a slow month, or to draw upon for unexpected expenses. In that case, a line of credit would work best for your situation. 

With a line of credit you can draw on the funds as needed. While you might have to pay a fee to keep it open, you only owe money and have to make payments if you’ve drawn on the line. They work similarly to a credit card, but often with lower interest rates. 

What is your business and credit history? 

A business owner’s credit history and the business’s credit history will impact both your ability to get funding and the rate and terms of the loan. It’s a good idea to pull a free copy of your credit report and check your credit score before beginning the process of applying for loans. It will help you save time wasted in applying with a lender if you know they do not work with lower credit scores. 

A credit score and business history are measurements of risk. If you have a low credit score, the bank thinks that there is a higher likelihood you will default on the loan. Businesses that have been in operation for several years also look like a better risk. Banks have less worry that they will suddenly fail and stop making payments. 

Business owner’s with a credit score above 750 can likely obtain funding from a traditional bank. If you have a Dun & Bradstreet credit report, the lender will also look at that when making underwriting decisions. It’s difficult to work with a traditional lender unless you have an almost-perfect credit score and business history.

If you’ve only been in business a few months, or less than five years, and have a lower credit score you can still get funding. But rather than wasting your time applying with banks only to get denied, look to online and alternative lenders. These lenders specialize in helping the businesses that traditional banks ignore

Best Business Loans for Laundromats

Once you know why you need the funds and how you’ll repay the loan, here are four good options. One of them will fit your situation.

Working Capital Loans

Working capital loans help small business owners cover the costs of day-to-day operations. If you’ve had a slow month they can help you make payroll or catch up on delinquent utility bills. They keep the lights on – literally.

Lenders fund working capital loans based on bank deposits and monthly revenues, so the underwriting process is faster than with a traditional loan. This means you could get funded in time to meet current obligations.

At Shield Funding, we extend working capital loans in amounts ranging from $10,000 to $1 million to business owners with credit scores above 650.

Small Business Loans

Small business loans are better suited for non-emergency needs. These loan products fund long-term projects like an expansion or capital investments like investing in newer machines. If you need funding for a longer period of time and have a clear plan for the funds, a small business loan is the best loan product. 

You can borrow as little as $5,000 with a repayment term of two months to three years and a minimum credit score of 650. 

Merchant Cash Advance

If you have a large volume of credit card receivables and need money for working capital or short-term needs, look into a merchant cash advance. With a merchant cash advance, you sell the lender a percentage of your credit card receivables. 

They automatically deduct your repayment from future sales, which makes repaying the advance easy. It also means you won’t have to make a large, lump-sum loan payment each month. If you have a credit score as low as 500 but significant credit card sales, you can apply for a merchant cash advance.  

Same Day Business Loans

If it’s time to open that new location, or you’re opening your first dry cleaning store, look into a large business loan. With this loan product, you can borrow between $50,000 to $2 million. Because they best suit larger projects, a large business loan has a longer repayment period. 

At Shield Funding, you only need minimum monthly revenues of $10,000, a credit score above 530, and two months in business to qualify. Within as few as 24 hours you could have the funds needed to start making your dreams a reality.

If talking to traditional banks has you discouraged, it’s time to reach out to an alternative lender. Alternative lenders know how best to serve the needs of small business owners, particularly if you need funding in a hurry. Take a few minutes to gather the necessary paperwork and apply online now.