It takes a heavy investment in washers and dryers to open or expand a laundromat. Laundromat equipment financing is a feasible alternative for numerous owners to offset the cost. But when bad credit enters the equation, funding can become difficult to obtain. Although it is attainable, there are many applicants who make easily avoidable errors that cost them their shot at approval or lock them into a more expensive loan term.
1. Disregarding Your Credit Score and Lender Qualifications
A significant misstep applicants encounter when seeking laundromat equipment financing is failing to know their credit status beforehand. Lenders will study your credit score to determine your ability to repay. When you disregard your credit score, your chances for receiving an approval letter or the best terms for your laundromat financing diminish.
Prior to completing an application, it is good to check your credit report for any discrepancies or unpaid debts. Each lender has different credit qualifications, while one lender may approve an applicant with bad credit, another may prefer an applicant with impeccable credit history. Knowing your credit status can help find the correct lender when laundromat equipment financing, and it could save time, as well as increase the chances of an approval letter.
2. Neglecting Interest Rates and Hidden Fees
There are many laundromat owners who are quick to accept the first offer they get for financing without looking reasonably at interest rates and other fees involved. This will have a significant effect on the overall cost of the loan.
When looking for laundromat equipment financing, try to receive as many options as possible. Even a small difference in interest rate can be equal to several thousand dollars over the term of repayment. Pay attention to hidden costs, e.g., fees for origination, fees for late payments, or external restrictions on payoffs or refinancing.
3. Providing Inadequate or Incomplete Documentation
Lenders must have the right loan documentation so they can assess your financial health and viability. Submitting inadequate or incomplete documentation is one of the top reasons for pending delays or rejections in laundromat equipment financing.
The documentation includes:
- Business financials
- Tax returns
- Equipment quotes or invoices
- Bank statements
- Business licenses or permits
4. Insufficient Collateral or Down Payment
People with bad credit frequently seek 100% financing. They might want to avoid providing collateral on the financing or down payment. This makes many lenders reluctant to deal with this type of client. Collateral reduces lender risk and increases your likelihood of compliance.
So if you have bad credit, and you provide a down payment on the loan or use the laundromat equipment financing, this would make your financing request more enticing to lenders. Even a small down payment can indicate a good faith effort to repay the loan; use a down payment as a springboard to lower your interest rate when financing a laundromat business loan.
5. Weak Business Plan
When applying for laundromat equipment financing, lenders will need to understand how you will utilize the funds and your plan for producing revenue. A poorly written or vague business plan is another common mistake that will hinder your chances of obtaining financing.
A prescriptive business plan needs to give a clear understanding of financial projections, market analysis, and a plan for repayment. Having this documentation will give lenders confidence in the potential growth of your business as well as your ability to repay the debt. Make sure to focus on how new equipment will improve operational efficiencies, reduce maintenance costs, and help you attract new customers.
6. Submitting Applications to Multiple Lenders
You might think that you’ll increase your chances of receiving financing if you apply everywhere. However, submitting multiple applications can actually affect your credit score. Each lender will conduct a “hard inquiry” against your credit report, resulting ultimately in a slight drop in your credit score. This holds extra risk if you are already in the unfortunate position of having bad credit.
Instead, investigate the lenders first before submitting applications to lenders who offer financing options that are reasonable for your credit position. Look for lenders who offer prequalification with a soft credit check before applying for laundromat equipment financing.
7. Overlooking Loan Terms and Repayment Flexibility
Many owners prioritize the loan approval process and neglect the terms of repayment. A short or inflexible repayment period can cause stress and cash-flow issues. Prior to signing a laundromat equipment financing agreement, confirm whether you can align the terms with your business plan’s income cycles. Be sure to utilize lenders that allow flexible repayment options without penalties for early repayment, as this will make laundromat financing easier to manage.
Conclusion
Bad credit doesn’t have to hinder your ability to invest in new laundry equipment or grow your business. The trick is to think smart about laundromat equipment financing by not making some common mistakes. Ultimately, a well-thought-out business approach, comparing terms of loans, or being able to offer collateral or a greater down payment, will always improve the likelihood your loan is approved and at reasonable terms for financing a laundromat business.
