By John Vassiliades | Jun 12, 2009
Well, it will take more money to make money today… more than ever before – and that goes for the self-service laundry industry as well. Before the economic meltdown of 2008, you could purchase a laundry with 20 percent to 25 percent down and “OK credit.” In fact, I have seen deals go down with as little as 10 percent to 20 percent down, using SBA-backed loans.
Today, however, it is a different story altogether. Most of the banks that had participated in lending for laundromats are requiring 40 percent down, and that would be for buyers with excellent credit as well as additional collateral in the way of equity in buildings or other hard assets. The Small Business Administration is still an option, but its requirements have tightened up quite a bit and the fees for putting together an SBA deal have become prohibitive in all but the larger deals.
The documentation requirements for securing a bank loan or a SBA loan also have increased. Tax returns are the prime documents required on every deal. These returns must show an adequate net cash flow (before depreciation and debt service) to repay the loan. This fact should be a wakeup call for prospective sellers who think they can sell their business with tax returns that show little or no cash flow.
Of course, there is a bright side to this, and that is store owners who have proper documentation, including tax returns that accurately reflect what their stores are producing, are the stores that are selling well in today’s market.
One alternative to bank loans or SBA financing is “seller financing.” This may be the only way for some owners to sell their businesses – at least for the next few years. I have seen a sharp increase in seller financing. Typically, the buyers will put 25 percent to 50 percent down, and the seller will keep a secure interest in the business and equipment as well as personal guarantees from the buyer.
Amortization schedules run anywhere from five to 20 years, depending on cash flows. Most seller-financed loans, as well as bank loans, will balloon in three to five years. That means that the entire balance of the loan will be due and payable at that time. Sellers that finance the buyers may have additional tax advantages with capital gains and in other areas, so always check with your accountant.
Even in times like we are experiencing today, the laundry industry is holding its own, and well-managed laundromats are showing increased sales over previous years. Remember, coin laundries fill a basic need in society and, therefore, will be more resistant to economic fluctuations.
So, if you are looking for a business to buy or you’re looking to buy a job, you may want to put laundromats on your short list. You may need more money than ever to make it happen, but in most cases, it is worth every penny.