Running a cleaning business may not seem like an expensive proposition at the outset, but you could spend anywhere from $2,000 to $10,000 to get one off the ground.

Therefore, you may need financing to get things rolling or growing your operations, but what kind is best?

In this article, we’ll discuss several financing options available to cleaning businesses, what you should look for in a business loan, and how to secure financing for a cleaning business.

Key Takeaways:

• If you have poor credit and need funds in 24-48 hours, consider a merchant cash advance or business line of credit. If speed of funding isn’t a concern, consider an SBA loan. If you need new business equipment, consider equipment financing.
• With good credit and solid business finances, a conventional term loan is likely to be your best bet.

Best Financing Options for Cleaning Businesses

Term Loans

A business term loan is the most common financing solution, and many cleaning businesses secure one when they need to pay expenses related to operation or expansion.

You can get a business term loan from a traditional lender, including banks and credit unions, or an online lender. Usually traditional lenders have stricter eligibility requirements than online lenders, so keep this in mind when you’re comparing your options.

To secure a business term loan, you’ll need good personal and business credit scores, as well as decent business finances. Generally, lenders want to see a personal credit score of 670 or higher and a business credit score of 80 or higher. Regarding business finances, lenders will want to see what your business generates in revenue, as well as how much debt it has.

Also, you may need to put up collateral worth 80%-100% or more of the loan’s value. Homes, vehicles, collectibles, and other valuable assets can be offered up as collateral, though what you offer up must be appraised and accepted by the lender. Should you default on your loan, your collateral will be seized and sold by the lender to offset their loss.

To get an idea of how you intend to use and pay back the loan, the lender will require a business plan and loan proposal with your application. Both documents need to be detailed and feasible, otherwise you won’t get approved.

Additionally, you’ll have to put up a 10%-30% down payment to secure the loan. Lenders require a down payment to reduce their risk.

If your credit isn’t great, consider bringing on a co-signer. If their credit is impeccable, you’ll have a better chance of securing the funds you need with more favorable terms.

Once you’re approved for a business term loan, it can take 1-2 weeks to receive the funds in your business bank account which will depend on the lender you choose. Traditional lenders tend to have longer review processes than online lenders, so keep that in mind when applying.

Before you sign a proposed loan agreement, it’s important to go through the terms. Specifically, look at the interest rate, duration, use requirements, and payment schedule.

The average business term loan has an interest rate of around 9%, but the rate you get will be determined by a range of factors, including your creditworthiness, your business’ finances, and the loan’s purpose. If your credit is good and your business consistently makes money, your interest rate should be on the lower side.

Regarding duration, business term loans can last for several months to a few decades. The loan’s purpose is the main factor which determines the loan’s duration. For example, if the loan will be used to cover working capital expenses, it may have a duration of several months to a few years. If it’s for equipment or real estate development, expect a 10-30 year duration.

Whether you’re looking to secure a $60k business loan or a $100k business loan – term loans can be great options worth exploring.

SBA Loans

A Small Business Administration (SBA) loan is like a conventional business term loan in many respects, but there are differences that lead businesses to choose one type of loan over the other.

For one, SBA loans are backed by the SBA, which means there’s less risk to the lenders who write these loans. This is why SBA loans can be secured by businesses with bad credit, shaky finances, or limited history.

Also, SBA loan eligibility requirements aren’t as strict as the ones traditional lenders have. To get an SBA loan your business has to satisfy the following criteria:

• The business must be located in the U.S.
• It must make a profit.
• It has to meet the SBA’s size requirements.
• It can’t be an ineligible business.
• It’s unable to get credit from traditional lenders.
• It must demonstrate it’s able to consistently make repayments on time.

Additionally, you’ll have to put up collateral, unless the loan is for $50,000 or less, and you’ll have to put up a 10%-30% down payment as well. Also, you’ll have to sign a personal guarantee, wherein you agree that the lender has the right to seize and sell your assets if you default.

However, unlike traditional lenders, the SBA has a loan forgiveness program—SBA Offer in Compromise (OIC)—for borrowers who default. If you’re accepted into this program, you’ll only have to pay back a percentage of what you owe.

There are several kinds of SBA Loans, but the most common are 7(a) and 504 loans. Usually, 7(a) loans are used as working capital, whereas 504 loans are used to purchase equipment or real estate. Both loans have use restrictions, and it’s important to know what these are before you apply for either loan.

Because SBA loans are for businesses with bad credit, shaky finances, or limited history, they have higher interest rates and stricter lending terms. However, one good thing about SBA loans is the interest rate on variable loans is capped. The average interest rate on an SBA loan is about 11%.

Lastly, a notable downside of SBA loans is it can take 2-3 months to secure financing. This is because the SBA and the lender have to come up with and agree on terms for the borrower.

Equipment Financing

Equipment financing is like an auto loan or mortgage for your business. Basically, you get funds to purchase new equipment for your business, but you don’t actually own the equipment until the loan is paid off.

Therefore, if you default on an equipment loan, the equipment will be repossessed and sold by the lender. If the equipment doesn’t sell for the price it was purchased for, you’ll still have a balance with the lender.

Naturally, an equipment loan can only be used to purchase the equipment specified. If you use the funds in another way, you’ll have to give back the money immediately and face penalties for misusing the funds.

Regarding eligibility requirements, most lenders that do equipment financing want their borrowers to have good credit, decent business finances, and an acceptable history of business.

That said, it’s possible to get an equipment loan with bad credit and shaky finances; you just need to convince the lender that the new equipment will help you generate more revenue and profit.

The average interest rate on an equipment loan is around 13% to 20%, but the rate you get is determined by your business’ creditworthiness.

Usually it takes 30 days or more to get funds from equipment financing, but the speed at which you get funding depends on the lender you choose. For this reason, it’s best to go with a lender that specializes in equipment financing, as they tend to work faster than general lenders.

Lastly, before you choose equipment financing, you need to understand useful life as it relates to machinery. Most lenders will only finance equipment that has a useful life greater than 10 years, but this will vary depending on the lender. Also, you may end up in a situation where the loan outlasts the equipment. In this case, you’d still have to pay back what you owe, even though the equipment is no longer operable.

Merchant Cash Advance

A merchant cash advance (MCA) is a popular financing solution for businesses that can’t secure traditional kinds of financing.

To secure an MCA, you just need to show that your business does considerable volume in credit and debit card sales; usually MCA lenders want to see at least six months of card sales. This means you can get an MCA even if you have bad credit or limited business history.

But before you get an MCA, you need to know they’re not like conventional loans, specifically when it comes to making repayments. With a loan, fixed repayments are made weekly, biweekly, or monthly. But with an MCA, you’ll pay a percentage of what you generated in card sales, usually on a weekly basis. This means some payments will be large and others small.

Also, MCAs don’t have interest rates but factor rates. Usually, the factor rate will be 1.1-1.5. So if you secure a $100,000 MCA with a 1.3 factor rate, you’ll have to pay back $130,000.

Lastly, you can get funding in 24 hours or less with an MCA, and this is why they’re a preferred option for businesses that need a boost in working capital to cover unexpected charges.

Business Line of Credit

A business line of credit is a lot like your average credit card, in that you get approved for a certain amount of credit and can’t spend beyond your limit. Plus, every time you make a repayment, your available credit goes up proportionally.

Business lines of credit can usually be secured in just 24 hours and the eligibility requirements aren’t hard to satisfy; you may even be able to secure one with bad credit or limited business history. Usually, business lines of credit last for five years and don’t exceed $500,000.

Before you get a business line of credit, understand the fee structure, as this form of financing comes with many fees. For example, you’ll probably have to pay a fee every time you draw on the credit line.

Lastly, figure out how much you’ll be paying in interest once you start making purchases. The average interest rate on a business line of credit is around 20% – making it one of the more expensive forms of borrowing for your business.

What to Look for in a Cleaning Business Loan

Quick Funding

Especially when unexpected charges risk draining your working capital to where operations can’t continue, expedited financing may very well save your business.

It’s possible to get some types of financing in as little as 24 hours, such as merchant cash advances and business lines of credit. The slowest lender by far is the SBA; they usually take 2-3 months to approve a loan.

Just make sure your need for fast funding doesn’t prevent you from doing your due diligence, as there are a plethora of scammers lurking in the world of financing.

Minimal Eligibility Requirements

If a lender has numerous eligibility requirements, and many of them are steep, the review process will probably take at least a week.

Does your business stand no shot of satisfying the requirements of a traditional lender? Then SBA or non-traditional types of financing may work out well.

Low Interest Rate

A lower interest rate means you won’t have to pay as much to borrow. Borrowers who maintain exceptional creditworthiness get the best rates, but you may be able to get a good rate if your lender is willing to negotiate.

When examining a type of financing, look up the average interest rate to get an idea of how much you’d be paying on the amount you intend to borrow.

Low Fees

Knowing the fees of the financing solution you want is imperative, as these will raise the cost of borrowing. For example, you’ll have to pay an application fee, origination fee, underwriting fee, and packing fee to secure a conventional business term loan. Also, there may be late-payment fees, conversion fees, and prepayment penalties to consider.

How to Secure a Loan for a Cleaning Business

1. Choose a Financing Solution

To determine which financing solution is best for your cleaning business, consider your goals.

• Need funding fast? A merchant cash advance or business line of credit may be perfect for you.
• Have low credit but need a sizable loan? An SBA loan may be a good option.
• Need funds for new equipment? Equipment financing is perfect for this.
• Have good credit and sturdy business financials? A conventional term loan is best.

Also, consider how long you wish to have the loan, how much you’re willing to spend to borrow, and other ways to raise capital.

2. Determine Your Business’ Creditworthiness and Finances

First, make note of your personal and business credit scores. FICO and Dun & Bradstreet are two widely used scores. A FICO above 670 is good, but anything above 740 is considered very good or excellent. A Dun & Bradstreet score above 80 will be viewed favorably.

When assessing your business’ finances, see how much revenue has been generated over the past year or so. Equally important is how much profit was made, as well as any outstanding debt. Basically, look at any metric that helps you get a picture of your business’ finances.

Be honest when assessing these factors, as there’s no point in wasting time with lenders that were never going to approve you because of your creditworthiness or finances.

3. Compare Lenders

Don’t go with the first lender you find. Instead, check out at least four or five to get a feel for what’s out there. For each lender, write down what you liked and didn’t like about them. This will help you narrow down to only the best options. Eventually you’ll know which lender is going to give you the best deal.

When dealing with lenders, don’t be afraid to let them know you’re considering multiple options, as this may be the key to getting favorable terms that you wouldn’t have got otherwise.

4. Gather Necessary Business and Financial Documents

Include the following with your loan application:

• Personal and business credit reports
• Profit and loss statements
• Balance sheets
• Income statements
• Tax returns
• Financial projections
• Legal agreements

It’s also wise to have other business and financial documents ready to go, as the lender may ask for these while reviewing your application.

5. Submit Your Application

Submit your application online or in person. However, it’s best to do what the lender recommends. This way you don’t unnecessarily elongate the process and cause delays.

6. Review and Accept the Loan Agreement

Once you’re approved, the lender will propose a loan agreement. Go through this document thoroughly at least twice to understand everything inside. Assess the main terms, which should be clearly listed, and look at the fee structure. If there are no objections, you can sign on the dotted line to secure your financing.

If you need help analyzing this document, reach out to the lender. If they can’t provide any clarity, consider hiring a business attorney to go through it with you. They’ll know where the red flags are and explain anything that doesn’t make sense.

Final Thoughts

A merchant cash advance or business line of credit may be what your business needs if your credit is bad and funding is needed immediately. On the other hand, if you don’t mind waiting 2-3 months for funding, and your credit is bad, consider an SBA loan.

Equipment financing may be right if you need new business equipment, but you’ll probably get the best terms, in general, with a conventional business term loan, especially if you have good credit and solid business finances.