CHICAGO — For small-business investors, especially those trying to get into the laundry industry for the first time, securing financing for a laundromat can be challenging under normal circumstances. When events like a public health crisis create economic doubts, the process takes on added weight.
This month, American Coin-Op polled a handful of manufacturers and commercial lenders on the state of lending today, how the laundry industry has responded to the now-waning pandemic, and the best approach to take to get your laundromat financing approved.
Part 1 addressed the resources available when applying for financing and the records one should gather or prepare to best support their application. Part 2 touched on industry reaction to the coronavirus pandemic and the general lending criteria a borrower must meet to gain loan approval. Part 3 looked at the influence of project scope and listed some “red flags” that could bury an application right out of the gate.
Q: An operator is approved for financing. What should be their next step?
Jeff Harvey, underwriting manager, Alliance Laundry Systems: We highly encourage investors to get pre-qualified for financing at the very beginning of their project. This typically is a quick assessment of what an investor would qualify for subject to finalizing their project. This is like how you would go about purchasing a home.
Most homeowners obtain a pre-qualification from their lender, then proceed to finding their home. Once you are pre-qualified with a lender, you work with your local distributor to finalize your project and obtain your loan approval. After your approval, your next steps in the loan process will be to sign and provide your lender with the required loan documentations so that they are ready to issue loan proceeds … when you need to pay for the project.
Matt Kluesner, director of portfolio management, Dexter Financial Services: They will need to work with the other various parties of their laundry project to bring it to completion. The financing is only one piece of the puzzle.
There may be new construction or renovation to be completed, which will typically include obtaining appropriate permitting and working with a licensed contractor. The operator will also need to work with their equipment provider to order the necessary equipment for their laundry project and then coordinate its delivery and installation, as well as working out details with their landlord or mortgage holder and obtaining appropriate insurance coverage. These are all various items that could be involved in a laundry project.
Marc Stern, executive vice president and chief lending officer, Eastern Funding: If buying a laundry, doing proper due diligence: reviewing the premise lease (and) utility bills, doing a coin count, (and) spending time in the laundry with the seller.
If retooling, get the equipment ordered as soon as possible, and hire the contractor, too, if you have not already done so.
Gary Corley, sales manager, Southwest Region, Whirlpool Commercial Laundry: If an operator hasn’t already done so, contacting a distributor is the next step. Distributors have a good understanding of the market and can provide the information and tools needed for success. A distributor is also a great resource for the things you will need to operate your store, such as parts, repair services, etc. The industry trade magazines can also help an operator with locating other vendors they will need, including soap suppliers, insurance companies, etc.
Q: When an operator or investor is turned down for a loan, what are their other options?
Kluesner: One option is to look for another partner that has the appropriate qualifications to help meet approval guidelines. If there is a certain area of the lending criteria that the operator or investor is deficient in that is causing the loan to be turned down, they can look to mitigate that deficiency by providing strong performance in another area. For example, if they are lacking in experience and have poor credit history, an operator or investor could mitigate that by providing sufficient capital into the project, which will also lower the loan amount required and improve debt service coverage.
Stern: If they are turned down by one finance company, chances are they will be turned down by others. The only option is to pay cash if this happens, the seller will finance the deal, or look for a different type of business.
Corley: If an operator is turned down for financing based on the business, don’t give up. They should look for a better location and keep trying. The applicant also has the right to know why they were turned down for an equipment or acquisition loan. Assuming the applicant was creditworthy, it may be possible to downsize the initial retool project or increase their cash investment into the project to help mitigate the lender’s exposure.
Harvey: If an investor is turned down for financing, they will receive an explanation as to why, and I encourage talking with the lender to understand why and what they can do to qualify in the future. An investor can then potentially work on improving those factors.
Another option is to apply with a different lending institution, as institutions may have different underwriting requirements.
Q: Aside from the information you’ve already shared, what advice do you have for current or prospective store owners who are seeking to finance a vended laundry project?
Stern: When you submit your application, please submit everything that the finance company has requested, and submit it in an organized and complete form. If this is done, the finance company’s job is easier, you will get an answer quicker and, most likely, get approved if you meet their lending criteria.
Corley: Contact the equipment distributor in your area. They know the market and can help with everything from finding a good location, demographic studies, store layout and design, and contractors. Most importantly, they know the best finance companies for the laundry business.
Harvey: When it comes to financing, I highly encourage investors to talk with a lender who has experience in the industry. Having (such) a lender … gives you an extra resource when investing in the laundromat industry. Manufacturer-based finance companies can be a great resource, as they typically are founded to provide an easy-to-use finance solution that helps investors obtain their product.
We encourage investors to look beyond their current project when working with a lender. You want to find a long-term partner that supports your current and future needs in order to streamline your financing needs.
Kluesner: For prospective owners, make sure to do your research. Fully knowing everything that your laundry project will entail is over half of the battle. Then you can decide what course of action to take and what will be required to best accomplish your goals. There are several experienced and successful laundry owners that would be more than happy to share tips and pointers to new owners getting into the business.
For current owners, I would say to be proactive. Staying on top of your equipment upkeep and being astute to when a machine is getting ready to need replacing is how you are able to operate without a significant loss of revenue. This is especially important since the pandemic and subsequent supply chain issues have developed. The timeframe for getting new equipment has been extended over the last couple of years and owners must be proactive in order to avoid downtime where a machine is not generating revenue.
Miss an earlier part of this article? You can read it here: Part 1 — Part 2 — Part 3
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].