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Laundromat Financing: Answering All the Right Questions (Conclusion)

Here’s what not to do when applying for project funding

CHICAGO — Securing financial approval for new self-service laundry ventures takes effective proposal preparation, investor relationship building and more.

Regardless of the project, the lender whose funding you’re seeking is going to have some questions, and how accurately and honestly you answer them will play a big part in determining your chances for approval.

This month, American Coin-Op polled a handful of manufacturers and commercial lenders on the state of lending today, the challenges your laundry business is likely to face when seeking financing, and the best approach to take to get your laundromat financing approved.

Q: When your organization reviews applications for financing, what stands out about those that are virtual locks for approval?

Leo Frazier, vice president and general manager, Dexter Financial Services: Applicants who already have a proven track record in the industry or in another related industry, have strong sources of outside income, have adequate working capital, and have had comparable debt and paid it timely are strong candidates for approval.

Tina Gough, senior finance sales specialist, Alliance Laundry Systems: There are so many variables that play into getting approved. However, a solid credit history, cash reserves, and submitting all of the required financial package in the beginning of the application process helps in getting a quick approval.

Jen Whitney, vice president of business development, Eastern Funding: Among the things that stand out are having strong entrepreneurial experience and/or business plan, a location with strong cash flow and debt service coverage, and good personal credit with sufficient cash investment/reserves.

Q: In general, what are some things that applicants should not do when seeking laundry equipment or project financing?

Gough: When deciding on what laundry equipment to purchase, it should never be based solely on price. The equipment performance and reliability should be factored into the decision-making process. Choosing state-of-the art technology is important but choosing a distributor that you trust can be just as important.

With regard to new-store transactions, where construction or improvements are involved, we recommend not financing the total cost of the project (equipment purchase, construction, card systems, etc.). Investors may have the ability to finance the full project, but being fully leveraged is never a good idea. You want the cash flow from the store to make the debt payments. And by financing the total project, that is putting a high expectation on what the store needs to do in a short amount of time.

Investors should never sign a lease prior to getting approved for equipment financing and making sure the landlord agrees to signing the lender’s “Landlord Consent” document. This document is usually a requirement to providing equipment financing.

Whitney: Avoid being vague or inaccurate in your responses. Do not apply without a complete business plan and projections for the store under your ownership.

Frazier: Whether it be a new investor or an existing store owner looking to expand, they should analyze prospective deals based upon a worst-case scenario and make certain that the project is feasible. Too many times, we hear of someone who thinks they can get into this industry and quit their job. One, two, or even three stores with debt probably isn’t going to allow that to happen. We always recommend that people continue running their business and jobs until such time that they are making in the laundry at least 2.5 to 3 times what they are making in their other business or job.

Q: What advice do you have for the operator or investor whose loan application has just been turned down?

Whitney: Focus on weak points and start working toward improvements. Build cash reserves and personal credit while continuing your research on the laundry industry and searching for the location that best fits your financial strength and business goals.

Frazier: If an applicant is turned down for a loan, they should ask for and understand exactly what factors caused the turn-down and what the lender recommends they do to correct or improve those factors to get approved in the future.

Gough: We always provide suggestions on what they need to do to get them to the point of an approved application. Often, it is due to derogatory credit or lack of down payment.

If it is derogatory credit, the investor will need to reestablish their credit by paying on time to their existing creditors or taking out a loan (i.e. using their savings account as collateral) and making timely payments to build back up their credit. The solution depends on the cause of the credit issue. With regard to down payment, they will need to continue to save or seek other options for that down payment (i.e. equity financing on real estate they own).

Our goal is to set the investor up for long-term success in the laundry business and to help them feel comfortable with the financial decisions they are having to make.

Laundromat Financing-Answering All the Right Questions

(Photo: © IzelPhotography/Depositphotos)

Have a question or comment? E-mail our editor Bruce Beggs at [email protected].