SBA Loan for a Laundromat - Ultimate Guide

There are between 18,000 and 35,000 laundromats in the United States according to data from IBISworld and Martin Laundry Systems.  Whether you are thinking about starting a new laundromat, or buying an existing laundromat business, an SBA loan could be an excellent financing option for you.  

I spent over a decade as the Executive Director of an SBA lender and today in my role as owner of ProjectionHub we help many laundromats create financial projections for lenders, so I wanted to take both sets of experiences and write what I hope will be a helpful guide to SBA loans for your laundromat business.  

I plan to cover the following:

With that as our guide, let’s jump in!

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Top SBA Lenders for  Laundromat Businesses

When it comes to starting a car wash business with SBA loans, Bank of Hope leads the way with 41 approved loans and an average loan amount of $628,329. Below, you'll find the top 10 SBA lenders for financing car wash startup businesses.

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Top SBA Lenders to Finance a  Laundromat Acquisition

Live Oak Banking Company leads as the top SBA lender for laundromat acquisitions, with 2,523 approved loans and an average loan amount of $1,505,613. Below, you'll find the top 10 SBA lenders for financing laundromat acquisitions.

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Top SBA Lenders for a  Laundromat Start Up

For those planning to start a laundromat business, The Huntington National Bank emerges as the leading SBA lender. They've approved 3,693 loans for laundromat startups, with an average loan amount of $276,148. Below, you'll find the top 10 SBA lenders for financing laundromat startups based on the provided data.

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Resource: Find an SBA Lender that is the perfect fit for your situation

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What is an SBA Loan? 

An SBA loan is a loan provided by a private lender but guaranteed by the U.S. Small Business Administration (SBA). This guarantee means that the SBA will cover a portion of the loan if the borrower defaults. Because of this guarantee, lenders are often more willing to offer favorable terms and rates to small businesses. SBA loans are designed to help small businesses obtain financing when they might not qualify for traditional loans. They can be used for various purposes including starting a business, expansion, or working capital.

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Is a laundromat eligible for an SBA loan? 

A laundromat can indeed be eligible for an SBA loan, as long as it's actively managed and operated by the owner. The distinction between active and passive business operations is crucial when considering eligibility for SBA loans.

The SBA typically does not grant loans to businesses that are considered "passive income" operations, which includes businesses like rental real estate. However, laundromats are generally considered "active businesses" because they require hands-on management for tasks like equipment maintenance, customer service, restocking vending machines, cleaning, and more.

To improve the chances of securing an SBA loan for a laundromat:

1. Active Management: Clearly demonstrate that the owner (or owners) will be actively involved in the day-to-day operations of the laundromat. Having a detailed business plan that outlines daily operations, marketing strategies, and growth plans can be helpful.
2. Experience: Highlight any experience or knowledge the owner has in the industry, as this can boost the lender's confidence in the business's potential success.
3. Financial Projections: Be prepared with laundromat specific financial projections that show potential profitability and a plan to repay the loan.
4. Existing Business Performance: If you're buying an existing laundromat, provide the business's financial records to demonstrate its profitability and potential for continued success.

Assuming that your laundromat concept is eligible for an SBA loan, let’s consider why an SBA loan might be a good fit for your business next. 

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Why use an SBA loan for a laundromat? 

Here are some good reasons to consider using an SBA loan to start or buy a laundromat:

1. Favorable Terms and Rates: SBA loans often offer longer repayment terms and lower interest rates than traditional loans, making monthly payments more manageable for new business owners.
2. Higher Loan Amounts: Due to the government guarantee, lenders are often willing to provide larger loan amounts, enabling you to finance a more extensive facility, better equipment, or cover more of the purchase price.
3. Flexibility: Funds from an SBA loan can be used for a variety of purposes, including purchasing real estate, equipment, inventory, or even for working capital.
4. Lower Down Payments: Traditional commercial loans often require significant down payments, which can be a barrier for new business owners. SBA loans frequently require smaller down payments, making it easier to get started.
5. Established Business Model: Laundromats have been a tried-and-true business model for decades. Lenders might view them as stable and profitable, making it potentially easier to secure an SBA loan for this purpose.
6. Building Equity: Using an SBA loan to purchase a laundromat means you're investing in a tangible asset. Over time, as you pay off the loan and the business grows, you'll be building equity in both the business and potentially in real estate if the laundromat property is part of the purchase.
7. Business Support: The SBA provides resources and training for small business owners. This means that, in addition to financing, you can get access to valuable insights and expertise to help your laundromat succeed.
8. Collateral Flexibility: While SBA loans often require collateral, the agency is generally more flexible about what can be used as collateral compared to traditional lenders.
9. Steady Cash Flow: Laundromats, when run efficiently, can generate a consistent cash flow. This predictable income can be appealing to lenders and might make it easier to qualify for an SBA loan.
10. Economic Resilience: Laundromats are often considered recession-proof businesses since clean clothing is a basic necessity. This resilience can provide added assurance to lenders about the stability of your business, even in economic downturns.

There are many good reasons to consider an SBA loan, and the fact that you can use an SBA loan to start a laundromat business or to buy a laundromat is extra helpful.  Let’s look at some specific considerations for both options. 

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Using an SBA loan to buy a laundromat vs. starting a laundromat

Using an SBA loan to buy an existing laundromat versus using it to start a new one comes with distinct considerations, benefits, and challenges. Here are the key differences between the two approaches:

1. Business History and Projections:

Buying an Existing Laundromat:

• There's an established business history which lenders can evaluate. Financial records, customer patterns, and existing cash flows can demonstrate the viability of the business.
• A proven track record might make it easier to get loan approval, as it can be perceived as less risky by lenders.

Starting a New Laundromat:

• You'll primarily rely on market research and projections to convince lenders of the business's potential success.
• There's an inherent risk with new ventures, making it potentially harder to secure a loan or requiring more stringent terms.

2. Due Diligence and Evaluation:

Buying an Existing Laundromat:

• Thorough due diligence is necessary to assess the real value of the business, condition of equipment, existing contracts, and any potential liabilities.

Starting a New Laundromat:

• Emphasis will be on location scouting, startup costs (like lease agreements, equipment purchase), and market analysis.

3. Initial Investment and Costs:

Buying an Existing Laundromat:

• Initial costs might be higher because you're purchasing an established business with existing equipment, inventory, and potentially the property.

Starting a New Laundromat:

• Initial costs are associated with setting up the business from scratch, which includes equipment purchases, renovation, and marketing to attract initial customers.
• We estimate laundromat startup costs to be between $200,000 and $500,000

4. Operational Challenges:

Buying an Existing Laundromat:

• You might inherit existing employees, customer expectations, and operational practices. While this provides immediate operations, there might be challenges in implementing changes or upgrades.

Starting a New Laundromat:

• You have the freedom to set up operational practices, choose equipment, and hire staff according to your vision. However, it might take time to establish a regular customer base and efficient operations.

5. Time to Profitability:

Buying an Existing Laundromat:

• Given that there's an existing customer base and operations, the business might be profitable from day one, provided you maintain its performance.

Starting a New Laundromat:

• It can take longer to reach profitability as you'll be building your customer base from scratch and might face initial operational challenges.

6. Loan Approval Considerations:

Buying an Existing Laundromat:

• Lenders can use the business's existing financial records, assets, and history as a basis for the loan approval process.

Starting a New Laundromat:

• Lenders will be more reliant on your business plan, personal financial history, and the perceived viability of the new venture. A well-researched and compelling laundromat business plan is crucial.

Both approaches have their advantages and challenges. Whether you're buying an existing laundromat or starting a new one, it's essential to conduct thorough research, consult experts, and ensure that your business plan aligns with your vision and the realities of the market.

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How to apply for an SBA loan for a laundromat?

Applying for an SBA loan to finance a laundromat involves a detailed process to ensure both the viability of the business and the borrower's ability to repay the loan. Here's a step-by-step guide to help you navigate the process:

1. Determine Eligibility for an SBA Loan: Ensure that both you and your business meet the SBA's eligibility requirements. This includes operating for profit, having a business located in the U.S., and the owner's investment of equity into the business.
2. Choose the Right SBA Loan Program:  The SBA offers various loan programs, with the 7(a) loan program being the most popular for small businesses. However, review the specifics of each program to determine which best suits your needs.
3. Research and Select an SBA-approved Lender:  While the SBA guarantees a portion of the loan, you'll work with an SBA-approved lender, such as a bank or credit union, to get the financing. Research local banks, credit unions, and other institutions that offer SBA loans.

Pro Tip: The SBA publishes the top SBA 7a lenders by loan number and dollar volume.  You can take a look at this list and then I would suggest finding a lender near you with a lot of SBA experience.

4. Prepare a Detailed Business Plan: A comprehensive business plan is crucial. This should cover market research, marketing strategies, financial projections, details about the laundromat's past performance (if buying an existing business), and your personal and professional background.
5. Compile Required Documentation: This can include:

1. Personal background and financial statements.
2. Business financial statements (if buying an existing laundromat).
3. Income tax returns (both personal and business).
4. Resumes for all business owners and key management.
5. A copy of the business lease (if leasing a space).
6. Detailed projections of cash flow for at least one year.
7. Legal documents, such as business licenses, articles of incorporation, and franchise agreements (if applicable).

4. Determine Loan Amount and Terms: Calculate how much you need, considering the cost of the laundromat, working capital, inventory, and any renovations or upgrades. Also, decide on desired terms like the length of the loan.  

Pro Tip: If you are buying a laundromat, our Acquisition Financial Model can help you calculate how much capital you will need. 

7. Submit Application to Lender:  Work closely with your chosen lender. They will guide you through their application process, which includes filling out the SBA's loan application form and submitting all required documentation.
8. Undergo Due Diligence and Review: The lender will conduct a detailed review of your application, which includes credit checks and a thorough examination of the financial viability of your business plan. They'll also assess the value of the laundromat and any associated collateral.
9. Loan Approval and Terms Negotiation: If the lender approves your loan, you'll then negotiate the terms, including interest rates, the length of the loan, monthly payment amounts, and any associated fees.
10. Close on the Loan: Once terms are agreed upon, you'll sign the necessary paperwork, provide any required collateral, and receive the loan funds.

I really hope this guide has been helpful to you as you consider SBA loan options.  If you have any questions, please feel free to reach out and I would be happy to try to help!

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