SBA Loan for Laundromat Business Ownership: Eligibility, Costs, and Application Process

Many small business owners and new entrepreneurs are drawn to laundromat and dry cleaning businesses, generally due to its strong, reliable consumer base. Regardless of the economy's health, there will always be a need for people to wash their clothes.

Although owning a laundromat can provide a consistent income stream, the start-up costs associated with owning and operating a laundromat are generally not low. Real estate, equipment, and working capital requirements can quickly add up to considerable sums. Therefore, structured business financing is a key factor for many borrowers who wish to own a laundromat. An SBA loan for laundromat businesses can be a good way to fill the financing gap between the start-up costs and maintaining enough cash flow to run the business effectively.

However, it should be noted that the SBA does not offer a laundromat loan specifically, but general SBA loans like SBA 7(a), SBA 504, and others can be used by laundromat business owners if they qualify the eligibility criteria.

This article explores how a laundromat SBA loan works, what lenders generally look for in borrowers, how small business borrowers should prepare to apply for an SBA loan, and ultimately how to make the best decision for your financing needs.

Why Laundromats Are Often Viewed as Semi-Passive Businesses?

Laundromats are commonly considered an example of relatively passive business operations due to the simplicity of the laundromat business structure. Customers pay per use ($) for washer/dryer cycles and only a few laundromats fully staff their facilities. Many laundromats employ staff members minimally (such as when customers are at their machines) or hire part-time cashiers (some laundromats operate solely from customer payments). Similarly, some laundromats hire third-party janitors to clean and maintain the building, allowing owners to manage the laundromat efficiently without being involved in any of the day-to-day operations.

There will always continue to be substantial long-term demand for laundromat services as long as people live in rental housing because many renters cannot afford to purchase a personal washing machine and dryer.  a personal washing machine and dryer. a personal washing machine and dryer.  a personal washing machine and dryer.

Because a significant portion of the population of the U.S. is comprised of renters, laundromats tend to be less affected by cyclical changes in the economy than many other non-essential businesses; hence, there is a significant number of lenders familiar with and experienced with providing SBA loans for laundromats to owners.

Understanding the True Cost of a Laundromat Business Loan

Before pursuing any SBA loan for laundromat ownership, it helps to understand the full scope of costs involved.

Common Expenses Include:

• Commercial washers and dryers

• Leasehold improvements or real estate acquisition

• Utility infrastructure for water, gas, and electricity

• Business licenses and local permits

• Initial working capital for operations

Equipment-heavy businesses often require financing structures that allow longer repayment terms

Because of these capital requirements, many laundromat owners rely on financing such as equipment financing or an SBA loan for laundromat assets rather than paying fully in cash.

What Is an SBA Loan and How It Applies to Laundromats

An SBA loan is not issued directly by the Small Business Administration. Instead, the SBA guarantees a portion of the loan issued by an SBA-approved lender. This reduces lender risk and may allow for more favorable loan terms for borrowers.

The SBA loan for laundromat ownership is commonly structured under the SBA 7(a) loan program, which is one of SBA’s most flexible business loan options.

SBA loans can be used for:

• Purchasing an existing laundromat

• Opening a new laundromat

• Equipment purchases

• Real estate acquisition

• Refinancing qualifying business debt

Why the SBA Loan for Laundromat Businesses Is Popular?

Several features make an SBA loan for laundromat financing appealing to small business borrowers.

Key Benefits

• Longer repayment terms reduce monthly loan repayment pressure

• Competitive interest rates compared to many conventional business loans

• Lower down payments than traditional commercial financing

• Ability to include working capital and fixed assets in one loan

Fixed maximum interest rates are established by the SBA for each of the SBA loan programs making the rates more predictable and easier to understand.

Common SBA Loans for Laundromat Businesses

For entrepreneurs looking for small business loans, an SBA loan for laundromat and dry-cleaning businesses could be a good option. Following are some of the popular type of loans offered by SBA for small business needs:

SBA 7(a) Loan

This is the most widely used SBA loan program that can be used for laundromat financing. SBA 7(a) loans allow borrowers to fund equipment purchases, real estate, and working capital under one structure.

SBA 504 Loan

The SBA 504 loan is more specialized and typically used when real estate or large fixed assets are involved. It may be suitable for laundromat owners purchasing property rather than leasing

Both options may be available depending on your business plan and loan amount.

Eligibility Requirements for an SBA Loan for Laundromat Ownership

Not every applicant automatically qualifies for an SBA loan for laundromat ownership. Lenders and the Small Business Administration evaluate both the borrower and the business.

General Borrower Requirements

• Operate as a for-profit business

• Conduct business in the United States

• Demonstrate ability to repay the loan

• Meet SBA credit history expectations

The SBA loan for laundromat does not state that a borrower must have a specific credit score. However, most SBA-approved lenders prefer to have a borrower with a credit score above 650 subject to the borrower's risk profile.

Documents Typically Required During the Loan Application

The majority of documents required to support your application for a SBA loan for laundromat business will include a significant amount of documentation. It is important to take the time to prepare.

Commonly Requested Documents:

• Personal and business tax returns

• Personal financial statements

• Business financial statements

• A detailed business plan

• Financial projections

• Business licenses and permits

• Lease agreements or real estate documentation

Lenders will review each of these documents when making decisions about cash flow or to help determine the needs of your business.

What Lenders Look for in a Laundromat SBA Loan Application

A lender reviewing an SBA loan for laundromat, lenders typically take into consideration the following three components:

1. Cash Flow

Lenders want to confirm that projected cash flow comfortably covers loan repayment. For startups, new businesses, and change of ownership, the SBA may look for a debt service coverage ratio (DSCR) above 1.15x.

2. Location

The success of a laundromat business is largely dependent on its location. Laundromats tend to perform better in areas with higher concentrations of people and large numbers of renters.

3. Equipment Condition

In general, laundromats that have new labor-saving (low-maintenance) washing machines and dryers will be less risky with respect to maintenance costs and will have lower utility costs than those which have had their equipment used longer.

Using an SBA Loan to Buy an Existing Laundromat

A loan to buy laundromat assets is often easier than financing a startup. An existing laundromat has historical financial statements, which helps lenders evaluate performance.

Benefits of acquiring an existing laundromat include:

• Established cash flow

• Known customer base

• Operating history

This is why many laundromat owners pursue a laundromat SBA loan specifically for acquisitions.

Financing a New Laundromat with an SBA Loan

A new laundromat startup may still qualify for an SBA loan for laundromat ownership, but lenders may require:

• More significant down payments.

• More rigorous financial projections.

• Previous experience within the industry.

Generally new laundromats may be examined more closely because of little to no operating history.

Down Payments and Loan Amount Considerations

When financing through an SBA loan for laundromat business, the down-payment requirements may vary  depending on the specific program chosen and other risk considerations.

Loan funds may cover:

• Equipment financing

• Leasehold improvements

• Working capital

• Commercial real estate

The exact loan term requirements vary based on the lender and type of loan for laundromat program utilized.

Interest Rates and Repayment Terms

Almost all SBA loans have interest rates connected to the prime rate, plus a lender's profit margin, which is limited by SBA regulations of capping the maximum interest rate that lenders can charge.

Most often, equipment financing can be paid off in ten years, while real estate can typically be financed over a period of 25 years. These longer loan periods help laundromat business owners to have better cash flow management.

Alternative Financing Options to Consider

While SBA loans are very popular, but they aren’t the only way to finance your business.

Other options for financing a laundromat business include:

• Credit unions

• Equipment financing

• Traditional term loans from banks

• Online loans from digital lending platforms

Each type of loan has its own advantages and disadvantages regarding interest rates, terms, and how quickly you can get approved. The best financing option for a laundromat business is the one that suits the unique needs of a business and is aligned with its long-term goals.

Conclusion

For entrepreneurs looking for continued, steady revenue, an SBA loan for laundromat is a good way to be able to finance their laundromat business. It can be an effective option. However, it doesn't work for all businesses or entrepreneurs as SBA has strict standards. If you're considering an SBA loan, there are specific requirements for eligibility and documentation and you would be working with an SBA-approved lender.

Financing your laundromat business through the SBA will require you to carefully plan out your business model and to have realistic expectations regarding the potential for growth with financing. When approached thoughtfully, laundromat financing through SBA programs can support sustainable growth without overextending business debt.