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.
Q: How can differences in project scope — funding an entire store vs. a few replacement machines, for example — affect the odds of funding success?
Marc Stern, executive vice president and chief lending officer, Eastern Funding: For small replacement deals, we only need our one-page credit application, the equipment order, and a copy of the (borrower’s) driver’s license. For larger deals, we need what (I listed previously).
Gary Corley, sales manager, Southwest Region, Whirlpool Commercial Laundry: For equipment replacement of $200,000 or less, a credit check and answering some basic questions about the operator’s business is usually all that is required.
For a major store remodel and larger retools over $200,000, operators should expect to provide a full financial package. Keep in mind that lenders want to loan money for worthy projects and if the new equipment will help grow the laundromat’s revenues and lower their utility bills, it is still easy to obtain funding for borrowers with a decent credit history.
Jeff Harvey, underwriting manager, Alliance Laundry Systems: Differences in project scope tend to change the application and financial requirements a lender may have. Projects of larger scope, such as a new laundromat, have additional application and financial requirements than a borrower looking for a few replacement machines. We encourage investors to reach out to their local distributor or lender to walk through those various requirements.
Matt Kluesner, director of portfolio management, Dexter Financial Services: Smaller projects are considered application-only and require less documentation and therefore less analysis as a larger project will. We do not generally see a large difference in approval rates of different loan sizes. The operator or investor should be prepared for a larger project taking considerably more time to navigate through the approval and funding process, but the odds of their approval remain just as likely as long as they have all of their financials in order.
Q: Can you list some “red flags” that lenders might look for when reviewing a loan application?
Corley: A poor credit score, low net worth, lack of business experience, and a short lease are all red flags for lenders.
Harvey: Lenders will be looking at your credit to see if there is any derogatory credit such as delinquent payments and bankruptcies. It’s important to be prepared to be open and discuss those items with your lender and how your circumstances may have changed since then.
Depending on the project scope, lenders may be reviewing bank statements and looking for any NSF [insufficient funds] charges and account balances that run near or below zero. Additional red flags would be a lack of income, either from W-2 or business ownership.
Kluesner: Poor credit history is something that most lenders will view as a “red flag.” How an operator or investor has repaid their prior debts is indicative of what might be expected in the future. Limited experience is another, as lack of industry knowledge can lead to operators or investors succumbing to pitfalls that experienced operators or investors have learned to navigate. In this area, we especially look out for rapid expansion with leveraging of debt for someone newer to the laundry business.
Stern: Insufficient cash to do the deal. Poor payment history. Bankruptcy in the last five years. For new investors, not doing proper due diligence about the laundry business and the local competition.
Check back Thursday for the conclusion!
Miss an earlier part of this article? You can read it here: Part 1 — Part 2
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].