Starting a carpet cleaning business is both exhilarating and nerve-wracking at the same time. While the thought of being your own boss has an almost magical appeal, it also means you are fully responsible for the outcome. Most new businesses rely on some form of borrowed capital to get started. How and where you secure this start-up financing can have a big impact on your new business. Let’s take a look at some of your best options.
Family and friends is often mentioned as a good source for start-up financing. If you’re lucky enough to have a rich uncle then this works really well. In reality, however, this method is fraught with danger. Families are hard enough to manage without the added stress of borrowed money. A parent(s) who wants to help can be a good resource but I’d stay away from siblings, in-laws, or any friend you’d like to keep. Family and money just don’t mix and I’d use any other method available before using them.
The SBA (Small Business Administration) and banks are a common source of business loans. The SBA doesn’t loan directly but guarantees loans through various banks. Unfortunately, they are more likely to loan to an existing business than a brand new one. However, it never hurts to apply and you will gain valuable experience learning what type of information they require and how it should be presented. This can help later when your business is established and you need more working capital to grow. A good businessman always thinks ahead.
Credit cards are often used to start a new business. They represent easy access to capital but come at a cost. The interest rates are high and can go higher at any time. You need to manage them closely to insure you don’t get in over your head. Start small and try to limit your borrowing to large items that are critical to your business e.g. cleaning equipment and supplies, van repairs, insurance, etc. Using credit cards for recurring everyday expenses is a good way to get in the hole fast. These types of expenses need to be minimized until you start generating some revenue.
Home equity loans are an excellent source of business start-up funds if you have that option available. The interest rates are lower than credit cards and the payments can be extremely low i.e. interest only. Usually after a certain number of years the loan becomes a type of second mortgage and can be amortized over 10, 20 or 30 years. You are still exposed to interest rate risk as these are revolving credit lines similar to credit cards. However, short term interest rates are currently near zero so the payments can be very manageable.
Retirement accounts are another potential source of start-up funding. This is not widely known but should be explored if you have IRA funds that you’d like to invest. The IRS views this as an investment made on behalf of your retirement account so the profits are tax-deferred as well. You get to pay yourself a salary and reinvest any profits in the business. Of course it’s not that simple to execute and you’ll need a good tax person to help you set it up, but it’s a real option for accessing money to start-up your new business.
Equipment leasing is another option for financing large capital items such as your carpet cleaning van or truck mount carpet cleaning equipment. Leasing offers the advantages of less capital outlay to get your new business off and running. This can be very important as most new business fail because of a lack of capital. Keeping your money in reserve to cover your business expenses until you can ramp up your revenue is sound business management.
Finally, there is the option to not borrow at all! Rent a van and a portable carpet extractor whenever you need them. This has the advantage of minimizing your costs until you get your new business off the ground. Maybe you find out that carpet cleaning is not the business for you, or the competition is fierce and it will take a lot longer than planned to grow your business. You now have the option to change course because you have not committed large amounts of capital.
Stating a new carpet cleaning business is a very challenging, but potentially rewarding undertaking. Most new business fail in the first few years so it’s important to get off to a good start. Understanding your funding options can help you structure your business to give you the best chance for success.
Related Posts:
- Buying Used Truck Mount Cleaning Equipment
- Truck Mount Carpet Cleaning Equipment
- Top Ideas for Improving Your Carpet Cleaning Business
Useful Links:
Related posts:
Most Popular