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: WHEN APPLYING FOR CAPITAL, WHAT RECORDS SHOULD A BORROWER PREPARE OR GATHER TO BEST SUPPORT THEIR APPLICATION?
Bryan Rausch, Northeast regional sales manager, Whirlpool Corporation Commercial Laundry: To make the pre-approval process even easier, there are several documents you can prepare and have with you when you meet with your lender. These include: signed credit application, previous two years of personal and business tax returns, personal financial statement, and two months of personal and business bank statements. In addition, other items that may be helpful to have up front, if they exist, include a completed profit-and-loss statement, a signed or draft purchase agreement, three to six months utility bills from the subject store, and a copy of the existing premises’ lease or deed.
Tony Regan, vice president sales and marketing, Eastern Funding: This depends on the situation. Some replacement equipment loans (typically for veteran laundry operators) only require an application, a valid form of ID and a copy of the sales agreement. For new laundries, one should be prepared to have a completed credit application, typically two years personal and business tax returns (if available), bank statements, a complete profit-and-loss statement, a copy of the equipment sales order, a copy of the premise lease or deed, and valid photo IDs of all guarantors. For acquisitions, it is important to have the most recent P&L statement along with utility bills for the laundry you’re buying.
Leo Frazier, vice president and general manager, Dexter Financial Services: An applicant for smaller, application-only-type deals will need copies of the last three months of business and personal bank statements 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, copy of their building lease (or deed, if owned), a proforma/projection on the business, and demographic information.
Jeff Harvey, manager of U.S. underwriting, Alliance Laundry Systems: For borrowers looking to replace equipment, it may be as simple as completing a one-page credit application, as many lenders that specialize in the coin laundry industry can provide a substantial amount of financing with limited information.
For borrowers looking for financing on new laundry projects, you will need to have some very common financial information ready to submit. This would include a few months of bank statements to show your lender the funds you have available for the project, prior two or three years personal and any business tax returns, and a personal financial statement. If there are any past issues, or derogatory items, being upfront and providing an explanation will be helpful in supporting the application.
Other items that may not be required but could help support their application include a business plan and proforma projections that can show the lender the project potential and the due diligence you completed to ensure success.
Pam Kuffel, financial services manager, Continental Girbau: At Continental, we have many types of programs and each one has different requirements. Generally speaking, a borrower should expect to provide their personal financial statement, tax returns, bank statements and location information.
Q: WHAT ARE SOME RED FLAGS YOU LOOK FOR WHEN WEIGHING A LOAN APPLICATION?
Regan: Aside from the obvious, bad personal credit or recent bankruptcy, the individual borrowers should have some reserve capital as a safety net while the business ramps up. Those who go into the venture with little to no money can potentially get overwhelmed and fall behind if the business needs some time to build up to the expected revenue.
There are some tremendously successful operators in our industry and sometimes they are so good, they make it look easy to the untrained investor. They don’t see the hard work and intangibles that go into building the business, so one potential red flag might be that an investor’s expectation is that the business will build itself, run itself and take care of itself. Yes, owning a coin laundry might afford someone more free and flexible hours but there still is a certain amount of work and attention needed to get it moving in the right direction.
Frazier: Inconsistencies in the data and information provided by the applicant(s) is definitely a red flag in the application process. Lenders have to feel they can trust the applicant and the information and data they have provided them so that they may make an informed decision on whether to approve them or not.
Harvey: Some common red flags include previous bankruptcy(s), charge offs, and any outstanding tax liens. Borrowers not being honest and forthright about their current or past financial situation are also red flags that can hinder a loan application.
Kuffel: Missing information on a credit application is the most common reason the lending process gets delayed. So, as a borrower, try to be as detailed as possible when submitting an application.
Q: IN GENERAL, WHAT ARE THINGS THAT APPLICANTS SHOULD NOT DO WHEN SEEKING EQUIPMENT OR PROJECT FINANCING?
Frazier: The most important thing an applicant should not do in dealing with a prospective lender is to be dishonest with them. Once a lender knows that the applicant has lied to them, it is very tough to rebuild that trust factor in order to get approved.
Harvey: I would recommend not trying to avoid any past financial/credit history blemishes you may have, but rather disclose upfront to your lender and provide the appropriate background about the past. If you’re looking for the quickest and easiest response, I recommend not sending your credit package requirements a little bit at a time. One fully prepared credit package will allow your lender to efficiently get through your review in the most time-effective manner.
If you missed Part 1, you can read it HERE.
Check back Tuesday for the conclusion!