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: Can you list the common challenges a laundry business might face when seeking financing?
Leo Frazier, vice president and general manager, Dexter Financial Services: The laundry business is a capital-intensive business that requires a significant amount of cash to get into. Making sure they have the cash to pay for the tenant improvements, down payments on the equipment, upfront payments for the financing, and have an adequate cash reserve for getting the project to cash flow.
Tina Gough, senior finance sales specialist, Alliance Laundry Systems: If it is a new investor getting into the industry, there is a down payment requirement of 15-30%, depending on the type of transaction (new build, acquisition of an existing laundry that is opened and operating). In addition to the down payment, reserves are also necessary to have while the store is ramping up.
Some investors have a lack of credit with little comparable borrowing or credit history. In those instances, a strong co-borrower may be required or additional down payment.
Most lenders require a document for the landlord to sign (“Landlord Consent” document), allowing the lender to not only remove their collateral in a default situation, but also to gain access to the location to present a viable new tenant to the landlord. Sometimes this document must be worked through with the landlord to come to an agreement.
Jen Whitney, vice president of business development, Eastern Funding: The challenges are different for laundry business owners depending on the type of project. If someone is buying an existing laundromat, buyers may have challenges with obtaining accurate financial records from the seller. It is important to receive updated P&Ls and utility bills to adequately evaluate the cash value and valuation of the laundromat.
If someone is building out a new laundromat, it is important for the investor to manage project costs and project timelines to minimize cost overruns. The challenge is not to advance on the loan too early to avoid incurring interest costs before the store is closer to generating revenues.
In either type of project, acquisition or new build, it is vital to have excess cash reserves, after the initial down payment, to cover any cost overruns.
Q: Must new investors fulfill application requirements beyond those of established business owners?
Gough: Depending on the loan request, an established business owner may need to provide financials on their existing laundromat. This would include taxes on the store, 12 months of utilities bills, and the existing equipment mix along with what the final equipment mix will be after the equipment purchase.
Whitney: The process for new investors is generally the same for established business owners. However, an important requirement for new investors is to have a complete business plan for the operations of the laundromat, including services to offer, hours of operation, marketing approach, personnel, and any plans for upgrading equipment.
Frazier: Generally, newer investors will have to provide all the information requirements I’ve listed for a larger-size deal along with demographic information on the location, along with the applicant’s business plan. Presenting a well-thought-out plan will help the applicant’s chances of getting the deal approved.
Q: In short, how should an applicant respond to any question a lender poses of them?
Whitney: Be honest, and be prepared to provide required documentation.
Frazier: Applicants should just be honest and forthright in responding to questions posed by the lender. The lender is looking to develop a relationship based upon trust, and lenders realize that everyone’s situation is unique and they all have their own story.
Gough: With openness and honesty. It helps when the applicant understands that the lender is on their side. There are requirements that every lender has to adhere to, and they are trying to gather all the information and documentation needed to obtain an approval for the loan amount the applicant has requested.
In Tuesday's conclusion: Advice if your application is turned down
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
