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: Heading into 2024, how would you describe the lending market, as far as it concerns laundry businesses?
Leo Frazier, vice president and general manager, Dexter Financial Services: While interest rates are higher than borrowers have experienced in previous years, the laundry business is still doing very well throughout the United States and customers are still investing in new projects and retools of their existing businesses. Lenders are more than willing to partner with good operators and new investors to help make their deals happen.
Tina Gough, senior finance sales specialist, Alliance Laundry Systems: Interest rates, set by the Federal Reserve, are expected to move down in the second half of 2024 and (see) little movement in the first half of the year. The downward movement in the 2nd half is not expected to be rapid nor dramatic. With interest rates not projected to be on the rise in 2024, it is a great time to replace your older equipment with more efficient models with newer technology. This will give you the capability to increase your revenues with cycle modifiers that newer technology provides, along with decreasing your utility costs—not to mention eliminating repair costs—with more efficient equipment.
Jen Whitney, vice president of business development, Eastern Funding: The lending market remains robust within the vended/retail laundry space. The industry is attracting new investors and existing owners are generally seeking to improve or expand their businesses. The demand for financing remains healthy with a current focus on equipment upgrades and business acquisitions/retools.
Q: What are the primary financing options available to laundry business owners and investors today?
Gough: Financing options are determined by the type of transaction and dollar amount of the transaction. New-store transactions provide a lower monthly payment in the first year after funding. They usually offer deferral periods (no payment required) and interest-only periods to allow the store to ramp up and obtain a better cash flow that first year. Payback of principal oftentimes is not required until after year one.
Financing options for replacement transactions usually require the principal to be paid back sooner, with maybe an introductory deferral payment in the beginning (60-90 days) of the life of the loan. The thought behind this is that the store is already ramped up with a good cash flow to make principal and interest payments out of the gate.
Overall, there are both variable and fixed-rate options, depending on the investor’s needs, along with loan terms up to 10 years. Our financial analysts have the expertise to match the best loan product to achieve the investor’s goals, both in the short and long terms.
Whitney: Laundry business owners have a range of financing options including direct financing from sourcing ranging from a specialized lender, their local bank and the U.S. Small Business Administration. There are financing options available for equipment purchases, business acquisitions, new laundry development, and commercial real estate. Loan types include term loans and business lines of credit.
Frazier: Captive and independent finance companies in our industry are two of the best financing options for existing business owners and potential investors. These lenders understand the industry, the collateral, and the collateral’s “remarketability,” allowing them to be the most flexible in designing a deal to meet the applicant’s needs and give them the best chance for success.
Q: What information should a laundry business applicant be prepared to gather and share in support of their project?
Whitney: Each type of project and loans will have different information requirements. These may range from financial statements on the investor (personal financial statement, tax returns, bank statements, entity formation) and on the location (actual/projected revenues & expenses, demographics, competitive analysis) in addition to leases or proof of building ownership.
Frazier: An applicant, for smaller, application-only-type deals, will need copies of the last three months of business and personal bank statements, a signed equipment agreement, and a copy of their driver’s license or passport. For deals over the application-only limit, they will also need a personal financial statement, copies of the most recent two years of federal tax returns (business and personal), copies of the articles of incorporation/organization, a copy of their building lease (or deed, if owned), and a proforma/projection on the business.
Gough: The amount of information needed from an investor is dependent upon the dollar amount requested and the type of transaction. For replacement transactions, we can pre-qualify an investor up to $200,000 to $300,000 based on just a one-page credit application if they meet certain criteria. For new-store transactions, we do require “a full package,” which includes: two years of the most recent tax returns (business and personal), three months bank statements showing down payment requirements and reserves, personal financial statement, equipment proposal, contractor’s statement, and LOI or copy of draft of lease along with the one-page credit application.
Check back Thursday for Part 2: Common challenges, loan requirements, and responding in the proper way
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].