CHICAGO — Whether you’re already running a self-service laundry or you’re an investor looking to get into the industry for the first time, obtaining the financing necessary to, say, buy new equipment or launch a new operation can seem daunting.
But by understanding where financing opportunities lie and then doing what’s needed to best position yourself to successfully get funding, that dream project can quickly become a reality.
This month, American Coin-Op polled several equipment manufacturers and commercial lenders on the state of lending, the financing options available, and the best approach to take in order to get a stamp of approval.
Q: IF AN OPERATOR IS TURNED DOWN FOR A LOAN, WHAT OPTIONS DO THEY HAVE?
Jeff Harvey, manager of U.S. underwriting, Alliance Laundry Systems: With the strong economy, there are a variety of lending options. If an operator is turned down, I recommend looking at alternative finance solutions. If you started with your local bank, consider manufacturer-based lenders or laundry industry lenders to see if you can get approved through an alternative source.
An operator may look at trying to find a business partner or co-signer to assist in getting loan approval. This may get their foot in the door and establish a relationship with the lender that will allow for future financing requests on their own. If all else fails, talk to the lender about what they would need to see to provide financing in the future and try to achieve those goals.
Pam Kuffel, financial services manager, Continental Girbau: It depends on why they were turned down, but there are options. For example, if there isn’t enough of a cash investment, the borrower could look for a partner.
Tony Regan, vice president sales and marketing, Eastern Funding: It depends on why they were turned down. If it’s their personal credit, do what they can to repair it. If it’s having the right net worth, do what they can to build up a cash reserve to put toward the investment. Possibly bring in a partner or co-guarantor. If it was an acquisition that was declined, maybe the cash flow didn’t support the valuation and the selling price was too high for the investment. If so, try to negotiate a better price.
Leo Frazier, vice president and general manager, Dexter Financial Services: If an operator is turned down for a loan, they should make sure that they understand exactly what factors caused the lender to turn them down and see what steps that lender recommends for them to correct or improve those factors so that they might get approved in the future.
Q: ONCE AN OPERATOR IS APPROVED FOR FINANCING, WHAT’S THE NEXT STEP?
Kuffel: The borrower needs to review and accept the loan terms and rates. Once that is done, the loan documents are prepared. This typically takes about one day.
Bryan Rausch, Northeast regional sales manager, Whirlpool Corporation Commercial Laundry: Pre-approval is the first step in the planning process and allows you to move forward. Next steps will include establishing an approximate budget, determining a location that meets that budget, negotiating a lease or contract to buy, and identifying the right equipment mix.
Your distributor can help you make key decisions in terms of equipment and space through market research — a competitive analysis, market size, income range and employment rate. This type of information will guide you along the way and can ultimately have an effect on your location’s success.
Regan: Keep things moving. Stay organized and set a timeline for either the construction and/or equipment delivery and installation. For acquisition of an existing laundry, make sure all of the legal entities are identified and all paperwork is in order so you can close without any complications, problems or snags.
Frazier: Once approved, a commitment letter will be sent out to the borrower to verify the terms of the deal and get them committed to the deal with a commitment fee. After that, the final loan documents are sent out to the borrower so that they may complete and return to the lender. Once done, the lender may issue a commitment letter or purchase order to the vendor so that they know that they have a valid deal and can proceed with the ordering, delivery, and/or installation of the equipment.
Harvey: I always recommend that operators or potential operators get pre-approved financing as early in the process as they can. This can be prior to deciding on equipment, new laundry locations, existing locations, etc. It’s a similar process to home buyers who get pre-approved for a mortgage before they go home shopping to know what financing they have available. After being pre-approved, the operator can finalize their intended purchase to receive their formal approval.
Once approved, technology has helped make the financing process easier, as many lenders allow for loan documents to be executed electronically. If you’re working on a new laundry project, many lenders require lease step-in rights documentation, which should be presented to the landlord as early as possible to ensure it’s approved as a part of the lease. Once all documentation is complete, the operator will work with their distributor to set up delivery and installation of the machines, at which point their lender will fund the loan to pay the distributor.
Q: ASIDE FROM THE INFORMATION YOU’VE ALREADY SHARED, WHAT ADVICE DO YOU HAVE FOR CURRENT/PROSPECTIVE STORE OWNERS WHO ARE SEEKING FINANCING?
Rausch: For those owners considering retooling a store, upgrading your equipment can be a bigger investment at the front end, and every retooling project will be unique. However, retooling can help provide countless benefits not only to you as a business owner, but also to your customer base as well. New equipment may help increase profitability, help decrease utility costs and potentially gain customer loyalty.
That said, whether looking to retool an existing store or purchasing a new store, it’s a good idea to look at the total cost of running your business and make a plan. There are a lot of costs beyond the purchase of a building or equipment when it comes to a laundry business. Planning ahead for the total capital needed to get your business up and running can help in the long run.
Regan: Be organized; it will make the process go smoothly and quickly. As mentioned previously, the finance companies are looking for ways to get you financed, not reasons to turn you down. When I tell people we want to get paid back on our loans, their reaction is sometimes shock that I said that. However, I explain it such that we don’t want to put you in a bad loan; we’re investing in your success, not your failure. If you are paying us back, it means your business is successful.
Take advantage of the abundance of free information and checklists available that outline specifically what is required. Work with industry-specific lenders who can help you with due diligence, who can work around any challenges that may arise during the process, and understand the coin laundry business.
Remember to stay focused on what your needs are for your project. Just because someone approves you for a million dollars doesn’t mean you have to take it.
Frazier: Come well prepared with all the necessary financial information in order and be openly honest with your lender regarding your financial history and what you are looking to do. Lenders ultimately want (to be) repaid and to build a relationship that goes beyond this one transaction. Thus, lenders are more likely to loan you money if they trust you, believe that you will honor your obligation to them, and share in your vision.
Harvey: I recommend that current and prospective store owners take the time to find the right lender for them. This starts by the store owner identifying their own short- and long-term goals and determining which lender is going to best help them achieve those goals. Interest rates are a critical factor to determining the right lender, but there are a handful of other important factors to consider.
Store owners should consider factors such as what types of Laundromat finance programs does the lender provide, ease of use, collateral requirements, down payment requirements, length of term, flexible payment options, fees, etc. These factors and building a strong relationship with your lender can help store owners achieve their long-term goals.
Kuffel: Talk with the lending source and understand the different programs available. Remember, it is key to submit a complete finance package with all the checklists fulfilled. In doing so, borrowers provide a more complete picture and eliminate missing information.
Miss an earlier part of this story? You can read it HERE or HERE.