Down Payment

[Austin Sciullo]

I am looking into buying my first laundromat and was talking to a distributor about financing. He informed me that a lot of lenders would like me to have some skin in the game with about 100k of my own money into the business. I’ve never started my own business so I was wondering if this seems right and are there any ways to not sink a lot of peronal money into purchasing a laundromat I’ve always heard of using other people’s money when starting a business.

[Jason Dodge]

There are a ton of ways to finance these. I did a mix of personal money, seller financing, private funds and even my line of credit from my house to purchase my first laundromat. The more conventional route would be to have 30% down or something in that range. Find the right location and then make it happen. Sometimes the sellers will carry the note. If you can find other peoples money then go for it.

[L H]

I had a similar question based on my experience so far.
I figured I would need about 30%-40% for a downpayment to purchase an existing business but as I’m finding out sellers are asking for 50%-70% down just to talk about a purchase. Is this normal?

[Austin Sciullo]

Thank you sir

[Emerson]

Austin, I am kind of reading between the lines and comparing information but will take a stab or a guess.

When talking to the distributor they were likely describing financing a new store “build”

The amount named by the distributor you talked to is right about the cost to outfit the infrastructure. Electrical, plumbing, hooking up to the sewer system, fees etc.

The “down payment” or skin in the game is paying for all of those infrastruture items while the funding company/ lender is most likely financing 100% of the equipment and related items.

The approach Jason described is more. likely for buying an existing store and sounds like what you are asking about. Just to me the distributor’s answer sounds like for a new store.

[Bianca Mendoza]

Why would you need to talk to a distributor? Im new to this, and I don’t own any laundromat. Im trying to read as much as I can about this industry, so bear with me.

[Divers Laundry]

Hi Bianca,
I agree with Jason if you are looking to purchase an existing store the best way forward would be to use personal funds, seller financing, and/or business lending. You would reach out to a Distributor if you were looking to start a new store as mentioned by Emerson. You would also speak to a Distributor if you were looking to purchase new equipment for an existing store.

[Bianca Mendoza]

Hello Divers

Thank you for the information!

[Jon dickey]

Could you use a SBA loan for the 30-40% and seller financing for the remainder? Is that even possible?

[Kayla Labrum]

I have this same question regarding SBA loan and seller financing! It seems like the best option for me.

[Dale Glave]

Did you find any info on this?

[Jason Dodge]

I do not believe this is possible. You will need to have some skin in the game, which is your down payment.

[Jason Dodge]

You need to talk with a lender that does laundromat loans and SBA loans to answer that question, Eastern Finance is one. In my experience, I don’t believe you can use seller financing as part of a SBA loan. And if you could, it would have to be a small percentage of the loan, like 10% or less.

SBA will allow private funds, or a private loan as part of the financing, but they are still going to require the buyer to have a down payment.

Jason

[Enea Rapo]

Hey Jason! Could you please explain what you mean by the following for the financialy illiterate? “I don’t believe you can use seller financing as part of a SBA loan. And if you could, it would have to be a small percentage of the loan, like 10% or less. Much apreciated!

[Jason Dodge]

Seller financing is when the person selling the laundromat will take payment terms on the laundromat they are selling. So if you are buying a laundromat for $100,000, and the seller will provide you with a loan for 10% of the purchase price, you will have a loan for $10,000 with principal payments and interest being whatever terms you agree on.

When I bought my first laundromat I had seller financing for $25,000 with interest only payments for 5 years and a balloon payment for the balance which was $25,000. The last two years of the loan I made larger principal payments to make sure it was paid off at the end of the term.

I also cashed in my 401k, put money on my credit cards, raised private funds and tapped the line of credit on my house to raise the entire $220,000 needed to buy that laundromat.

Does that clear it up?

[Joe Jereb]

Not from experience, but just repeating what I’ve read/heard–I understand that SBA will not back loans that have any other debt, even if it is subordinate to the SBA loan. One way around this seems to be full-standby loans from the seller, where they do not receive any principle or interest payments until the SBA loan is fully paid off. This sounds like a seller providing what is potentially a discount on the selling price, so might be a big ask.

[Enea Rapo]

Hey Jason!
Thank you for that reply, I do apreciate your answer!
So if i understand correctly, if i would get a bank to get me an SBA loan over a Owner financing deal, you saying that they may only give me up to 10%, which i could use it for a down payment or anything for that matter?
If thats the case why would that be the case ? why wouldn’t Sba give a higher percentage in this case?

Thank You!

[Jason Dodge]

I’m not saying you can get SBA financing over a owner finance deal. You really need to talk with a lender that does these loans. Generally speaking, a person with experience in a given area, like laundromats, can get a SBA loan with 10% down. In some cases they will allow gifted funds or small loans from other sources. This is on a case by case basis as EVERY LOAN SITUATION IS DIFFERANT.

I have two SBA loans but this does not make me an expert by any means. The situation with my first Laundromat that I referenced above, this was not a SBA loan.

The correct answer will be when you pick up a phone and call a lender and hear it from them. Eastern finance is well versed in the area.

[Juan]

In addition to what’s been stated herein. SBA and other lenders like to see business experience in addition to the buyer bringing some funds to the table.

Financial institutions (and even the SBA) prefer to see a minimum of 2 years in the business which ends up being a catch 22 It could get downright frustrating. I got tired of hearing similar responses and wasting time so I ended up funding my own purchase and finding the will, the drive, motivation, dedication, and gumption to make it work.

Here I am 16 years later very happy with the outcome. My only regret was not starting sooner. This is not an easy business by any stretch of the imagination. You have to be true to yourselves on whether you and your family and some friends even are all in. If the answer is no, you are stacking the odds of success seriously against yourselves.

[Author]

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