If you’re looking to open a center, then at some point you have to face the reality that you’re going to need to spend, and thus track down, a good chunk of money. There are many ways to fund your floating dreams – personal capital, help from family and friends, investors, tap dancing in a Chewbacca outfit for change in Times Square, etc. 

This post, however, will focus on financing using bank loans.

 

Industry trends

For the past three years, Float Tank Solutions has polled the floating community and subsequently published the State of the Industry Report. This project has illuminated a wide range of trends that mark the growth and evolution of the float industry. One of the major shifts revealed by the data is an ever-increasing reliance on bank loans.

As float centers prove to be a viable business model that can succeed in a range of communities, banks are increasingly receptive to the idea of forking out money for these salty ventures. With the current loan environment being generally favorable, pursuing a bank loan as a means toward opening your center can be a fantastic option if you don’t happen to have a mattress stuffed with money. (Always wanted one of those.) Let’s dive a little deeper into the type of loan the float community is using.

 

SBA loans

Any small business looking for financing should expect to apply for a Small Business Association (SBA)-backed loan, sometimes referred to as a 7(a) loan. Whereas large, established companies can secure traditional, non-SBA loans with low interest rates, small businesses are inherently risky. A bank generally won’t issue a loan unless the applicant has at least 3 years of statements available.

The SBA, by backing “small” loans made by private lending organizations (up to $5 million), provides a safety net that hedges against that risk. If a small business fails to pay back the bank, the SBA will be on the hook for most of the loan – sometimes as much as 85%. This allows lenders to confidently support new or expanding businesses while offering relatively reasonable interest rates. Without SBA support, banks would be forced to impose astronomically high interest rates in order to insure against the generally-high rate of small business failure (something like 50% don’t make it past 3 – 4 years).

When looking for an SBA 7(a) loan, you want to find a pre-approved lender. Pre-approved banks have a well-worn pipeline for SBA loans, and using one will help ensure a speedier, more efficient process. You might have one of these top-lenders in your community. Talk to other small business owners in your community. Who did they use for a loan? You can even use SBA’s LINC Tool to connect to pre-approved lenders that are right for you.

While “small” is in their name, the SBA’s influence is anything but. The great thing is that they exist because they want to see you succeed. In addition to the multitude of online resources available, they also have regional and district offices where you can go for assistance. The nearest office will help you find a local, pre-approved lender, and can also put you in touch with a SCORE business mentor and a Small Business Development Center.

In addition to the standard 7(a) loan, the SBA also provides CDC/504 Grow Loans, also known as real estate & equipment loans. As long as you meet these requirements, you can use an equipment loan for the purchase of land, facilities, or equipment. This type of loan is perfect for purchasing float tanks, specifically. Because a 504 loan is secured by physical capital, the interest rates can be considerably lower. While a equipment loans is always worth pursuing, the 7(a) loan is still the most common for businesses just starting up.

 

Money matters – so does experience

While applying for a loan can be hectic and convoluted, at face value the process is quite simple: you need to convince a bank that you and your business plan are The Poster-Children of Future Success. While a tight, convincing loan application will go a long way towards securing financing, banks want to know who you are and what skills, knowledge, and experience you bring to the table.

The first issue at hand is how much money you can afford to shell out. In general, 20% is the absolute minimum you could put down for a bank to loan you the difference, but we recommend you try to have it closer to at least 30%. The greater the down payment, the better the chance you will secure a loan and even get a lower interest rate. A 1% drop in you rate will save you many thousands of dollars in interest paid over the life of your loan. If you can put off buying that diamond-encrusted bluetooth headset just a little longer, and instead put it towards your center, you could come up with some serious long-term savings.

If you need to, you can use personal assets (house, car, etc.) as collateral for the bank loan. While doing this can get you a better interest rate because you are perceived as less risky by the bank, this puts the risk squarely on your shoulders. Are you willing to bet your house that your float center will succeed? We can’t say what’s right for everyone in this scenario – just take some time to seriously consider all the ramifications before deciding.

Finally, the experience and skill sets that you and your business partners bring to the table are the most valuable assets you can present to a loan officer. You can throw all the money you want at a down payment, but that’s all for naught if you can’t convincingly show them that you are capable of running a business. Do you have prior employee management, construction, tech, or sales experience? Make sure you highlight all possibly-relevant skills and knowledge. Beyond adding up all the numbers, your loan application is an opportunity to prove to the bank, as well as yourself, that you have thought through everything needed to run a float center. If you haven’t, the loan process will certainly bring that reality to the surface.

 

The details

While every center will eventually be distinct/special/a unique unicorn/(a uniqueorn), all loan applications will have the same components. There are two main portions of all applications, the first being the financials. The SBA generally expects to see 3 – 5 years of financials, broken down by quarter. We suggest, however, that you go a step further and break down the first year month-by-month because this reflects the most active period of building your customer base.

Specifically, your financials will include:

• A Profit & Loss Statement (P&L) summarizing your revenues, costs, and expenses
• The overall cashflow of operating, investment, and financing activities
• Balance sheets demonstrating your assets, liabilities, and capital over the length of your loan
• Your capital expenditure equations
• A ratio breakdown of your cashflow, liabilities, assets, etc.
• A breakeven analysis

 

Banks love numbers but they also love people and plans. After all, it’s the competency of people which bringeth forth good numbers. So, the second major component of your loan application is a lengthy written plan. Like, 20-plus-pages-lengthy. Whereas your financials represent your quantitative goals, the written plan is your qualitative and narrative opportunity to prove the viability of your center. This portion will include the following components:

• An executive summary focusing on your experience and background as they relate to your business venture
• A broad company description
• An exploration of the services and products offered (“What the heck is floating anyhow?”)
• A summary of the float industry and analysis of its future
• A detailed analysis of your particular market
• Your strategy for market penetration and sales
• An operational plan detailing how your center will run
• An organization and management profile
• A breakdown of your funding requirements and how funds will be used

 

The process

You’ll need to submit everything stated above, but it’s up to the bank how and when you submit all of these materials. The loan process can go one of two ways. Either they’ll ask you to submit all of the materials in one go or they’ll want to see certain portions one by one.

If it’s the latter scenario, they’ll generally first ask for the executive and financial summary in order to better understand the broad perspective of what you are trying to do. The bank will then follow up and require your full financials and business plan. From there, they may also request specific appendix materials.

Whichever process your bank requires, you can expect a significant amount of back and forth with your lender. Getting a loan is a lengthy and detailed process, and it’s important to know that you’ll get feedback and be expected to re-submit information. If you get frustrated, just remember that you would ask a lot of clarifying questions also if a stranger asked you for hundreds of thousands of dollars for a business concept you’ve never heard of. For many, the loan process is actually a crucial step for clarifying and evolving their business goals.

This brings us to the final element of the loan process: humans! Like it or not, even with a super tight business plan, relevant professional experience, and a strong handshake, you can get denied simply because the loan officer isn’t convinced. This could be due to their lack of familiarity with floating, some holes in your business plan, or because it’s lunchtime and they are just plain ol’ hangry.

If you get rejected, ask for feedback and the opportunity to re-submit. Perhaps run it by another loan officer at that bank if it doesn’t work, or try a new bank! If you keep experiencing rejection, you can always come full circle to make use of all the resources that the SBA has to offer.

We know that opening a center is a lot of work, so we are excited to see that the funding possibilities are opening up. As the gospel of floating continues to spread, we hope that the process only get’s easier. Wherever you are in your search for funding, we are always here to help!