Lisa White, Strategic Alliance Manager of Absolute Laundry, is the guest author of this post. She highlights some of the ins and outs of laundromat financing including why local banks are often not the ideal place to seek financing for acquiring a laundromat or purchasing laundry equipment. The post wraps up with a testimonial on why she chooses to recommend Eastern Funding to her customers who seek financing for their laundry projects.
Financing a Laundromat Business: A Laundromat Developer’s Perspective
A common misconception that seems to plague the vended laundry (laundromat) industry is that laundromat financing will be easy. Customers have frequently commented that they have a “stellar” relationship with their local bank, or they had “just” completed an SBA loan and acquiring the funds would be quick and straightforward. I’ve heard similar stories many times but I’ve yet to witness such an instance.
Local Bank versus Laundry Industry Focused Lender
Historically speaking, local banks find lending to a laundromat business problematic. First and foremost, the collateral of commercial laundry equipment is not something they have experience repossessing if the worst-case scenario were to unfold. This component alone can require the lender to increase the interest rate, fees, or collateral to offset the risk. Additionally, most banks do not have a relationship with equipment distributors, leaving them in a precarious scenario if collateral must be retrieved. A vehicle or physical property may serve as an easy and viable collateral source since used commercial laundry equipment is far more difficult to retrieve and resell if repossession is necessary.
What I most commonly experience is being asked for assistance after customers have attempted obtaining financing through their own sources. Some have even spent months trying to work with their local bank, only to have their home taken as collateral. There may have been periods of time during my twenty-three (23) years of experience as Strategic Alliance Manager of Absolute Laundry when lending for Laundromats was less cumbersome. However, with lending being a persistent and historical problem I have made it my professional goal to understand the differences between lending options. This skill set allows me to offer my customers a seasoned partner when navigating the pros and cons of all available lending options.
There are several specific areas of lending where traditional local banks get hung up:
- Acquisition: Attempting to acquire an existing Laundromat it is the valuation for purchase that is often misunderstood. Additionally, Laundromats are still considered a cash business so the lending field gets narrower.
- Soft Costs to Re-tool: The soft costs to build the infrastructure needed for commercial washers and dryers to operate correctly are often misunderstood. These expenses simply do not directly translate into traditional lending worksheets and practice.
- New Equipment: Financing replacement equipment may be easy at first glance, but certainly not fast. Purchasing equipment with bank money is lengthy and troublesome; Customers comment that the sequence of events can be frustrating as they need equipment to be released, but the bank finds themselves challenged in issuing payment prior to the receipt of equipment. This can create a dilemma as the bank will require the model and serial numbers and receipt of delivery before issuing funds, adding even more time to an already lengthy transaction.
Often after a failed laundromat financing attempt, many customers feel they do not have options to finance the replacement of aging and inefficient equipment, let alone acquiring or building a new laundromat. A denial from a financial institution that does not understand the laundromat industry is not only disappointing but can derail an owner from considering beneficial upgrades that make sound economic sense.
Non-industry lenders do not fully understand the value of such upgrades, and cannot offer a prosperous partnership.
While researching, buying, or building a laundromat, many investors are led, sometimes erroneously, to believe that financing will be best suited for an SBA loan. While this is possible, it is not probable. The process is also remarkably lengthy and customers may lose out on a desirable location while awaiting approval. Most first time business owners find themselves with the challenge of attempting to obtain financing without the experience to create or benefit from projections and pro formas. These details are necessary to obtain an SBA loan, and first time buyers can be prevented from realizing their dreams of owning a Laundromat without them.
Throughout our decades of business, we at Absolute Laundry have received weekly solicitations from a variety of lending sources. Many companies have attempted to provide solutions for our industry, and most have failed. As a result, many manufacturers of commercial laundry equipment have attempted in-house financing solutions. This may be a viable option for some; however, it is not the only option.
Why We Choose Eastern Funding
For over a decade we have referred many of our customers to Eastern Funding for all of their equipment needs. Eastern Funding has over 20 years experience financing laundromat equipment and acquisitions, with a team knowledgeable of the laundromat industry. Their site survey and location analysis is second to none. They offer additional resources for customers who want a second look at a Letter of Intent or Lease; they are there to help ensure the customer is making the best business decision possible.
I am most impressed with the amount of knowledge they are willing to share with their customers. Eastern Funding is not beholden to any one equipment manufacturer, which I believe is a key consideration that should not be overlooked. If a project is denied approval following Eastern Funding’s due diligence, one can surmise that they themselves would not personally pursue the project. These types of checks and balances, and advice provided to existing and new laundromat owners, goes far beyond any other lender. Traditional lenders focus primarily on securing and retaining collateral, while Eastern Funding builds a relationships based on mutual understanding. Their intention is to grow the business, in partnership, with the owner.
Eastern Funding is owned and operated by honorable individuals working hard to ensure our customers are making sound financial decisions. This depth of relationship is rare in this day and age, and is what I believe to be the most important partnership for every customer who requires a financial partner.
In summary, there are indeed various options when it comes to lending in this industry, but viable choices are few. My company has been enthusiastically endorsing Eastern Funding as our preferred financial partner for over a decade. All of our customers appreciate Eastern Funding’s integrity, efficiency, and knowledge; preferring to partner with their team for all laundromat financing.