CA cleaning company grows through the recession with new sources of small business funding.
Larry Lovaglia, owner of San Jose, CA window washing business Significant Cleaning, has had his business since 1987 and had always taken out loans from his bank to help expand his business. However, after the crash in 2008, Larry’s bank would no longer provide him with a loan. According to a 2012 SBA report, there are more than 27 million small businesses in the U.S., but obtaining a small business loan is harder than you’d think.
CBT: When, why and how did you get into the cleaning industry?
LL: In 1983, I was working in a restaurant and nightclub when a colleague asked me to join him in starting and growing a cleaning company. And after running his operation for about four years, in 1987, I stepped out on my own with Signature Cleaning Services. I had learned two key things working for another company:
1) I wanted to be my own boss
2) I wanted to make sure that the people doing the work – the cleaning technicians – were well taken care of.
In the beginning, my wife and I did the cleaning ourselves, so we really know what it’s like to be on the front lines and we know how important it is to appreciate the cleaning technicians. And that focus – in addition to demand for services – has led us to enjoy steady, solid growth in our 27 years in business.
CBT: How did you fund your growing business in those early years?
LL: Like many small business owners in the 1980s, I turned to my local bank for a line of credit and occasionally a loan. Back then it was pretty simple. But that’s how every business gained the cash flow to support growing payroll and to cover accounts receivables when clients didn’t pay on time and bills were piling up.
CBT: What advantages do you find in using credit or financing to empower business growth?
LL: You know, I like using other people’s money and borrowing to make growth possible. I’ve never been afraid of the risk of borrowing because I’m confident that my business will continue to grow. Why? Because I’ve been diligent in cultivating a diverse client base, not tying myself to any one industry or sector.
There was a time when I wanted to stay out of cleaning medical facilities and was trying hard to break into cleaning Silicon Valley. That was back in the late 1990s, and I’m sure glad I was stuck with all of the medical facility contracts when the .com bubble burst.
And with the line of credit available to me even then, I could be sure to cover payroll – which is the biggest expense stress we all have – and still have the financial ability to take on surprise opportunities when they walked in my door.
CBT: Why do you think banks stopped lending to cleaning businesses?
LL: Here’s the trap that cleaning businesses fall into: we are successful, profitable small businesses that are growing; we need cash to grow, but don’t have any assets that lenders want.
It makes sense, really, when you think about it. What is a cleaning business’s biggest asset? Its cleaning technicians! And the business can’t put up its people against a loan, can it? That’s what banks finally realized and why it’s so hard for a cleaning company – any service business, really – to get a start-up loan or a decent line of credit.
CBT: What sources other than banks have you looked into or used?
LL: When the bank funding first dried up, I either found or was approached by primarily two types of funding:
1) Factoring companies who wanted to take over our outstanding receivables, and would take a percentage cut of all monies collected.
2) Advance loan companies, which are very expensive loans with high up-front fees, high interest rates and impossibly fast repayment periods.
These aren’t great choices, but we did take an advance loan to increase our ability to grow through the recession and recovery period.
CBT: With your recent expansion into Arizona, it’s clear you are still growing strong and steady. What new sources are available to support your continued growth?
LL: Wanting to avoid another advance loan, I went searching online to see what else was out there. There are lots of new funding agencies, and I called several to talk with them.
What I found was mostly like when I used to talk to the banks. They asked questions about my rates, assets, receivables, basically the questions that could assure them that I had the wherewithal to pay them in a timely manner.
The one I finally went with was Funding Circle, mainly because they asked me about my business, my goals, my growth plan. Sure, I knew they were going to profit somehow if I chose to borrow from them, but it was nice to be asked about my challenges and goals before being presented with a spiel about their services.
CBT: What advice do you have for cleaning business owners who are hesitant about using credit or loans to grow their business?
LL: Coming out of the recession, we’re finding that margins are smaller and consumer and business clients are tighter with their purse strings. This makes supported growth even more important, as it’s the only way you’re going to continue to be profitable.
Smart business financing choices can get you there faster, relieving the day-to-day stress of keeping the books in the black and freeing up your time to revise operations to be more efficient or to craft and launch a new marketing campaign.
