Financing mix for a new mat?

[Chris Hart]

I know cash is king, but is there a best mix of cash vs. financing for buying a new laundromat? Interest rates seem low enough now that it seems like a no brainer to borrow and keep cash on hand for upgrades and keep the business with some operating capital.

[Mitch Brunette]

Hi Chris,

While I really don’t know as a current newbie getting started, I’ve run numbers on 5 locations with varying down payment amounts and have found the mats that are more attractive (even if outside my budget) work with 20-25% down while achieving nice cash on cash returns. Additionally by leveraging more as you mentioned with low interest rates, depending on your goals, you can build some pretty nice reserves which is what our plan will be as we continue to consider and pursue opportunities. With all that said, this is all based on buying an existing location for sale versus the build out model. Best of luck!

[Dave “Laundromat Millionaire” Menz]

Hey guys, In my opinion paying all cash is foolish (due to record cheap money and the devaluing of our currency), however I do believe you can be overleveraged too!

I recommend that you put together a complete master business plan for the first 5 years of ownership. If it’s an older mat that’ll need new equipment, a renovated interior, etc then include those budgets. From there work your way backwards to the beginning and plug in your available cash on hand.

Keep in mind that it’s tougher(not impossible) to finance certain things than others. Not too many lenders will finance payroll or a buildout of your space. However financing equipment and commercial buildings is much easier to obtain.

I recommend you put yourself in your lenders shoes and use the old common sense test. If you default on said loan, do they have any collateral? If so, the loan will be more easily obtainable. If you have specific questions, feel free to shoot away! Best wishes to you guys!

[Tom Maricle]

Year ago when I owned restaurants we looked into doing an SBA loan to buy a larger one and one of the things I learned from there was that there are industries that they support and ones they didn’t (at the time they wouldn’t do Micro Breweries due to the high failure rate).

I believe they would loan up to 70% of the purchase and start up costs but the business had to have legitimate (tax based) financials that were 135% profit above loan requirements. For example if your annual payments were going to be 50,000.00 you’d have to prove that over the last 3 years the business made 67,500.00 in profit each year over the last 3 years.

Also, at the time the seller could contribute owner financing to cover part of the down payment. So if the purchase price was 300,000 and the SBA would loan you 210,000, you could put 50k down and have the seller hold back 40k. I like the option of owing the seller some money in case there were lies and/or omissions in their sales pitch.

I think the rates are pretty good and the program is easier to use than a typical bank loan but you do have to have legitimate income that is large enough to cover your anticipated expenses.

It’s been 20 years since I researched this so if this interests you please don’t rely 100% on my comments and do update the post if there are corrections.

[Los Angeles-Orange County]

I have spoken with two lenders that specialize in laundromats and they will generally fund 60% to 70% of the approved purchase price depending on credit.

[Benjamin Kelly]

If you don’t mind sharing, what two lenders have you spoken to?
I have spoken to an SBA lender and they have said that they do lend on laundromats but the financials have to be recorded and cover the minimum standard for DTI.

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