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: HOW WOULD YOU DESCRIBE THE CURRENT LENDING MARKET?
Leo Frazier, vice president and general manager, Dexter Financial Services: The availability of financing for customers looking to replace equipment, expand their existing store, and/or build a new location is good. Captive and independent finance companies in our industry still have a strong appetite for well-qualified borrowers.
Jeff Harvey, manager of U.S. underwriting, Alliance Laundry Systems: Given the strong economic indicators, credit is readily available across a variety of different lending solutions. Interest rates have been increased over the past few years by the Federal Reserve but appear to be leveling off.
Tony Regan, vice president sales and marketing, Eastern Funding: The market seems to be healthy. A number of lenders are expanding their offerings to include real estate to go along with the business and equipment financing. We are seeing a number of non-industry lenders entering the vended finance market but not having a serious appetite or expertise to get projects funded.
Q: WHAT RESOURCES ARE AVAILABLE TO CURRENT OR PROSPECTIVE VENDED LAUNDRY OPERATORS WHEN IT COMES TO APPLYING FOR FUNDING?
Harvey: There are a variety of resources available to current and prospective laundry operators when it comes to applying for financing. Many lenders will have application checklists walking the investor through what information is needed to apply for financing. Investors can leverage the expertise of their local distributor to help put the finance package together. Additionally, there are several industry trade publications and organizations that discuss best practices when it comes to applying for financing.
Pam Kuffel, financial services manager, Continental Girbau: At Continental, we have a dedicated staff handling finance questions. We urge investors and laundry owners to call us so we might walk them through the steps and processes. We work closely – as a team – with borrowers and their distributors to address questions and fit the investor with the finance program that best fits their needs.
Bryan Rausch, Northeast regional sales manager, Whirlpool Corporation Commercial Laundry: Whether buying a new store or retooling an existing store with new equipment, working with your distributor is a good way to get started. Your distributor can provide expert industry knowledge, guidance on equipment mixes and local data in terms of market information and demographics. In addition, he or she can guide you in the types of financing available, through a manufacturer or with a lender who understands the commercial laundry industry.
If you’re purchasing an existing laundry business, many forms and documents will most likely be provided by the current owner, and your distributor can help analyze this information for additional insight and help give an idea on what a return on your investment might look like.
If you already own at least one store, you may have the opportunity to borrow against equity and leverage that increased value to finance new equipment upgrades for a retooled location or for purchasing a new laundry location.
Regan: Some equipment manufacturers and independent finance companies have various options for both veteran operators and newcomers to the business. For new store projects, loans can be modeled to provide ample time for the business to ramp up. For veteran operators, there are usually a number of options to leverage their current business against new equipment, store acquisition, and/or expansion of new stores. The desire to own the real estate is something we’re seeing more of. Using a resource such as the Small Business Administration (SBA) can be less of a hassle if you partner with the right lender who can help navigate the process.
Frazier: Captive and independent finance companies in our industry are the two best sources of funds for an applicant’s vended laundry project. 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: UNDERSTANDING THAT EACH APPLICATION IS JUDGED ON ITS INDIVIDUAL MERITS, WHAT GENERAL LENDING CRITERIA MUST A BORROWER MEET TO GAIN APPROVAL?
Kuffel: The criteria changes with the project’s scope and the borrower’s background. For new projects, we typically look for a 30% cash investment into the total project. For replacement equipment, we can finance up to 100% pending credit approval.
Rausch: If you are looking to purchase a new store, financing could require 30-35% of the entire project down. It’s important to note that there are a number of different options to structure equipment and total project financing. For example, lenders may propose an offer of 100% financing with no cash down. This would simply mean that the equipment is 100% finance and the cash investment is on the build-out/construction. Either way, there will need to be an upfront cash investment.
Beyond being able to meet upfront financial expectations, lenders will consider credit scores, net worth and business experience. Guidelines to score an A credit include being a homeowner, a net worth of two-three times what you’re looking to borrow, having a FICO score of 650 or above, and a minimum of two years of business experience. Should you have a lower score, try to provide a reasonable explanation if possible. This may include a medical bill situation. Lenders will listen and try to help when they can. And, laundry-specific business experience isn’t a requirement, but a background that includes managing people and collecting money is beneficial.
Regan: While it is said that the three most important components of a successful laundry are location, location, location, the borrower does need to be qualified. The goal of all industry-specific lenders is to help the investor get an approval. It is critical we make a good business decision for both the lender and borrower. Basic criteria includes good personal credit and net worth, experience running a business, and a certain cash investment into the project. After that, we look to the project, working closely with the borrower to make sure the cash flow of the laundry meets their needs and covers debt service.
Frazier: Lenders first and foremost want to make sure that the borrower is going to succeed and prosper, allowing them to repay the debt according to the scheduled terms. Borrowers must be a good-quality operator who has a strong repayment history, and a well-thought-out plan for where they like to go in this industry. An ample amount of working capital, along with cash flows from either a job, existing laundries, or other businesses are also necessary. If lenders believe in their plan, then it is just a matter of finding a solution to meet everyone’s needs.
Harvey: The application requirements typically vary based on the type of financing the borrower is requesting. For example, most lenders have different application requirements for replacement equipment financing, new laundry project, acquisition financing, etc. Lenders that specialize in the coin laundry industry have made it even easier to get replacement equipment financing with a one-page credit application.
Credit scores are one piece of the investor profile. Certainly, higher scores in the 700s are desirable, and those customers may be approved for better rates and terms. However, lower credit scores in the 600s may be acceptable. Lenders will consider other factors, such as liquidity available, net worth, and business experience when rendering a credit decision.
Check back Thursday for Part 2: Supporting records, red flags, and things not to do