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Are you considering investing in a dumpster franchise? One name that might have caught your attention is Redbox+ dumpsters. In this article, we'll delve into the details of financing a dumpster franchise and provide you with valuable guidance. Whether you're a seasoned investor or just starting out, understanding the financing options available is crucial for a successful venture.
Understanding the Costs
John, a prospective investor, submitted a question about Redbox+ dumpsters, expressing his interest in evaluating the franchise opportunity. He mentioned that the initial cost of the franchise, including purchasing a truck and dumpsters, is approximately $700,000. To make an informed decision, John sought guidance on the down payment required and the type of Small Business Administration (SBA) loan he should apply for.
SBA Approval and Eligibility
Redbox+ dumpsters are listed on the approved franchise directory, indicating that they are eligible for SBA loans. However, it's important to note that being on the directory doesn't guarantee approval by the SBA. To determine the precise financing requirements, you'll need to review the franchise's disclosures and startup costs, as they provide a breakdown of anticipated expenses. Pay special attention to the working capital required, as startup costs may not include operating capital.
SBA Loan and Collateral
SBA-approved banks, known as Preferred Lenders Program (PLP) lenders, typically offer loans ranging from 80% to 90% of the total project costs. However, keep in mind that each bank has its own lending policies. In the case of a collateral shortfall, additional collateral may be required. If you own a primary residence or rental properties, the bank might place a lien on them to secure the SBA financing.
Finding the Right Bank
When seeking financing for a franchise, it's crucial to find a bank that specializes in the franchise concept or has funded similar franchises in the past. Some banks prefer specific sectors within the franchise space, while others offer financing for a broader range of franchises. By partnering with the right bank, you increase your chances of securing the loan you need.
Determining Down Payment and Loan Type
The down payment typically ranges from 10% to 20% of the total project costs. However, the exact amount depends on various factors, including the franchise itself and your creditworthiness. Factors such as your credit score, financial status, and income sources will be considered. Maintaining a stable job and possessing additional collateral, such as a house with significant equity, can enhance your chances of loan approval.
Navigating the Loan Application Process
To initiate the loan application process, you'll need to complete several forms, such as a financial statement form (Form 413). If you have existing businesses, you'll also need to provide debt schedules and financials for those enterprises. Additionally, personal tax returns and a form 1919 may be required. While this may seem labor-intensive, the process is streamlined, especially if you leverage the templates and documentation provided by the franchise.
Taking the Next Step
If you're considering investing in a dumpster franchise like Redbox+, it's essential to have a clear financing strategy. Beau Eckstein, host of the Investor Financing Podcast, offers free strategy calls to real estate investors looking to refinance or expand their businesses. Whether you have an extensive portfolio or are just starting out, Bo can help you develop a strategic finance plan tailored to your goals.
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