How To Best Finance A Cleaning Business

Starting your own cleaning business is an exciting venture. Once you have developed your detailed business plan, you will begin to have an idea of what you need to accomplish for your next steps. One will be to determine your options to assist in financing your business.

The best ways to finance your cleaning business include – leasing equipment, renting equipment, bank loans and/or lines of credit, or alternative financing. 

For your business to be successful, it is important to have the equipment and other resources you need. However, assuming too much debt that you cannot manage can create problems that will hinder the success of your cleaning business. Continue reading for financing options for your company. 

Leasing Equipment

How To Best Finance A Cleaning Business

Leases for equipment involve signing contracts that detail the agreement between the owner of the equipment, the lessor, and you, the lessee. The following are usually components of lease agreements –

  • Length of the lease

Some lessors require a minimum length of time for which you must lease the equipment. Make sure that will meet the needs of your business. Know the duration of the lease before you sign the contract.

  • Amount of and frequency of payments

The payments will be calculated based on a number of factors; be sure you know what is included. The interest, principal, equipment depreciation, taxes are some of the costs that are often part of the payments. Due dates for payments and any late fees should be detailed in the contract. 

  • Options at the end of the contract

In the contract, the date of the last payment and when the equipment must be returned is agreed to. At the conclusion of the contractual period, the lessor and lessee can discuss next steps with the equipment, or that can be detailed in the contract. Either the equipment must be returned to the owner, the lease is extended – terms might change since the equipment is older, or the lessee can purchase the equipment. If purchasing the equipment, the pricing and applying part or all of the principal portion of the payments can be negotiated. 

  • Cancellation conditions

All contracts should have a means for the lessee to cancel the lease. Depending on your reason for ending the agreement, there may be financial penalties. However, the contract should provide you with the guidelines you need to terminate the lease. 

Leasing can be an effective means to finance your cleaning business. With a lease, you can obtain equipment that you need to start your company. Once you have signed the contract, the equipment will be available for your use. 

Equipment can be costly. Leasing provides you the ability to start your business without a significant capital expenditure or a large loan. The lessee does not need a down payment to obtain the equipment. For many, this will provide the opportunity to start your business sooner. 

Other benefits of leasing, you can gradually grow your business. As you obtain more clients, you can increase the number of vehicles or pieces of equipment that you are leasing. Conversely, if you discover that you do not need as many floor scrubbers as you forecasted, but you need more floor and tile steamers, then you can alter your leases. If you owned the equipment, you would have made purchases that are not benefiting your business. 

Also, maintenance of the equipment is often detailed in the contract. The lessor might have the maintenance support to repair the equipment that you are leasing. Be sure to include in your contract details regarding who supplies the repair parts, who performs the repairs, and the access to other equipment if needed. 

Leasing your equipment and/or vehicles can be an effective option to finance your cleaning business. Longer term, it may be beneficial to investigate owning some or all of your equipment. 

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Renting Equipment

How To Best Finance A Cleaning Business

Another option to finance your cleaning business is to rent equipment that you might need. When you are starting your business, renting equipment can provide flexibility for you. If you are not certain how many steam cleaners you will need, renting them can solve that problem without a significant investment of your money. 

Similar to leasing equipment, you will sign a contract. This agreement will stipulate the length of time you have access to the equipment. It will also detail the amount of and frequency of your payments. 

Typically, renters of equipment or vehicles are not responsible for their maintenance or repair. Read your contract thoroughly to be sure. Also, be sure the agreement includes details on supplying you other equipment if what you are renting is being repaired. You cannot afford to not have your necessary equipment for your cleaning jobs. 

Rental agreements can be for a shorter duration than leases. However, you usually do not have the option to purchase the equipment when the contract ends. 

Once you have determined how much equipment you need daily for your business, you may want to revisit which equipment you rent and which pieces you consider purchasing. 

Bank Loans or Lines of Credit

Obtaining a bank loan or a line of credit is another option to finance your cleaning company. This is a particularly effective alternative if you know exactly the type of and how many units of each piece of equipment and any vehicles. 

However, before a bank lends you money, you will need to present to them your business plan. In your detailed plan, you should include a forecast of the type of cleaning services your company will provide. Additionally, specifics about the equipment and/or vehicles should be included. Once you have been approved for your loan, you can now purchase equipment. 

There are benefits to owning your company’s assets. You do not need to rely on anyone else for repairs; however, this also means that you or someone in your company can maintain and repair your equipment. Owning your equipment means that you can depreciate their value on your taxes. Often, there are other tax benefits to owning your equipment. 

When seeking to obtain a bank loan, be sure to search for the best interest rates. A line of credit can offer more flexibility and lower costs than a loan. Using a line of credit, you only borrow what you need at the time you need the money. The amount you have not borrowed or used from your line of credit is not being charged interest. 

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Alternative Financing

How To Best Finance A Cleaning Business

Alternative funding includes possibilities, other than banks and credit unions, that you can pursue to obtain money for your cleaning business. Often these financing prospects do not have the same credit requirements as banks. 

  • Community Development Financial Institutions 

CDFIs are organizations that have been certified as a specialized lender. Financial institutions or businesses that have earned this designation focus their lending practices to assist people who do not have the ability to obtain financing.  

  • Grants

Money is available from local, state, and the federal government to assist small businesses through grants. Grants can be difficult to obtain, but the money from grants is not a loan, so it does not have to be repaid. 

  • Microloans

Microloans are small amounts of money available from nonprofit organizations and for-profit lending institutions. If you only need a small amount of money, this can be a great way to start your company. 

  • Social Lending
    • Crowdfunding or Crowdsourcing
    • Peer-to-Peer

These online lending platforms provide a means for you to make your pitch for financial support. Individuals have their money combined through the platform to loan to your business. Be sure to understand the limitations and responsibilities of using and paying back the money. 

  • Small Business Association

SBA offers support through loans and grants. 

  • Venture Capital

Venture capitalists can be individuals or companies that are seeking to invest their money in companies. Often, they are seeking part ownership in the business in return for their advice and money. 

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Frequently Asked Qeustions

  • What does APR mean?
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APR is an abbreviation for annual percentage rate. If you are obtaining financing for your cleaning business through a loan, your annual cost for borrowing the money is the APR. Lenders must divulge the APR to you, which is needed to understand how much the money is costing you. 

  • Who is a co-borrower?

A co-borrower is someone who agrees to be equally responsible for the payments on the loan along with you. Lenders will examine the credit rating of both the borrower and co-borrower before approving a loan. A co-borrower also can take control of the title of the property with you. 

  • What is a co-signer?

A co-signer signs a loan to assist someone who cannot qualify for the loan on their own credit. The co-signer’s credit rating helps with the loan approval. They are responsible for loan payments if the primary borrower fails to pay. They are not eligible to assume the property’s title. 

  • What is a prepayment penalty?

A prepayment penalty is when a lender charges a fee for paying all or some of your loan before its due date or the end of the loan’s term. 

To learn more on how to plan your own cleaning business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.