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Navigating Loan Options

So you have decided to go into business for yourself. And you’ve chosen to operate a cleaning service and you’re going to need supplies and equipment.

But what if you have more dreams than dollars to get your venture off and running?

You may need to find the right funding for the equipment required to get the job done, as well as to support the continuous purchasing of cleaning supplies that’s necessary to keep day-to-day operations running smoothly.

 

There are several ways to find the financing you need, but some of these options require that you put some of your  own savings into the business. Before looking at your small business loan options, you should consider all the reasons you may need funding.

 

Here are a few reasons you may encounter:

Paying employees: Whether you are starting out or hiring more help, paying them on time requires cash flow. This  affects your business, because you cannot retain  good qualified help if you are not able to pay them on time. Clients paying you late for their services can cause a sudden cash crisis and affect your ability to make payroll.

 

Buying supplies: Paying for the cleaning supplies and materials required to get the job done takes cash. Your clients will expect you to be prepared with all the supplies you need to make things shine. Don’t let cash flow issues impact the quality of your services.

 

Vehicles to get you there: Because your work is done at your customers’ homes or work sites, vehicles are as important to your business as how well you clean.

 

 

For a list of small business alternative lenders, see the U.S small business association sba.gov

 

Basically, your company operates on wheels, and not at a storefront. Your business vehicles need to be reliable,  well maintained, and fit to your needs in terms of size, as well as vehicles that represent your company.

 

Insuring your business: You will be paying premiums for adequate business insurance, including liability, workers’ comp and bonding your employees.

 

A Clean Sweep of Funding Options
You need a loan solution that fits your small business needs, which may include one that is quick and does not require valuable collateral or excellent credit to obtain. Commercial lenders, like your local bank, may not be the best  option to choose if you have insufficient revenue or a credit history that does not meet their requirements.

 

Commercial Bank Loans
Small businesses with less than 20 employees will probably struggle to get approval for a loan from a bank. Criteria for loan approval includes what most small business typically lack: a detailed business plan, excellent credit, lengthy business history and valuable collateral.

 

Pros:

• If you qualify, the interest rate would be lower than many other loan sources.

 

Cons:
• Need funding now? You are out of luck. It may take 30-60 days to receive the money you need.

• The application process is long, tedious and requires a lot of financial documentation.
• You are possibly risking your personal property. Bank lenders often require personal guarantees from small business owners. If you default, you can lose your collateral.
• If you are just starting a maid and cleaning services business, banks will not be anxious to loan you money. They typically turn away requests for a start-up loans because new businesses lack a solid three years of business financial history.

 

Business line of credit
A business line of credit is offered through a bank or an alternative lender. Bank requirements usually include an excellent credit score and a lengthy application. Alternative lenders often have faster options and usually look more at your business potential. A business line of credit is a flexible loan tailored to your business that allows you access, as needed, to a line of funding.

 

Pros:
• It works sort of like a credit card only typically at better interest rates. You have access to funds quickly.
• There is an established limit to the credit, but the guidelines are not as stringent as with most small business loans.
• There are fewer hoops to jump through and you use only what you need.
• Payments are based only on the amount borrowed, not the full line of credit.

 

Cons:
• The interest rates may be good, but not as low as some commercial loans.

 

Small Business Association (SBA) Loan Programs
The SBA is a government agency that connects borrowers to one of their trusted lending partners. They then guarantee part of the loan, giving your application more clout. The SBA offers several small business loan options, each with their own set of very specific criteria. Since the SBA guarantees your loan, qualifying with the lenders may be easier than if you approached them on your own.

 

Pros:
• The interest rates are generally low, depending on your credit rating.

 

Cons:
• Your application is judged by your credit score, business history and even your resume.
• You will be required to have a very detailed business plan, well-articulated, and include your marketing plans.
• The government is involved so this loan takes time. You may not see any funding for about 90 days.

 

Alternative Lender Loans
Most small business owners seeking a loan today are turning to alternative lending solutions where alternative lenders can offer ease and fast results.

Their business is specialized loan solutions to fit the needs of business owners who risk precious time and possible  rejection from the bank and SBA application processes. These custom-design options include small business loans  and lines of credit, with more flexibility and ease than with conventional lenders.

 

Pros:
• Usually a simple one-page application can secure your loan. Documentation is also simple and easy to complete.
• Even if your credit is not stellar, you can get approval. The health of your business and your potential is part of the approval process.
• You get approval and the cash you need faster than with other types of lending options.

 

Cons:
• Because they are more likely to take on risk with someone with less than perfect credit, your interest rate may be  slightly higher than with a bank or the SBA.

 

TAXING QUESTION

Are you taking advantage of the Section 179 tax deduction for purchasing laundry and other equipment for your business?

Financing new equipment before the end of the year may allow you to keep more of your money through IRS Section 179 tax deductions. Consult your tax professional to find out how it can benefit you!

What is Section 179?

Section 179 of the IRS tax code allows businesses to deduct the cost of certain types of equipment on their taxes. Professional laundry, garment care and other commercial equipment purchases may be eligible for Section 179 deductions.
Source: Eastern Funding

 

Sources: Equipment Leasing and Finance Association and the Small Business Association.