Tweet

The Most Common Ways to Finance a Coin Laundromat

Guest post by: Brian Brunckhorst

Article Overview: What is the best way to finance a coin laundromat? Should you pay all cash for the store or should you finance it? Well, that all depends on the terms of the financing, how much cash you have, and how much cash flow you need to pocket each month from the business.

The Most Common Ways to Finance a Coin Laundromat

All right, so you have just found the perfect coin laundromat business and you've just signed a purchase agreement. Congratulations! Once the euphoria wears off, you will quickly realize, "I need to come up with some money to pay for this business."

So what is the best way to finance a coin laundromat?

Should you pay all cash for the store or should you finance it? Well, that all depends on the terms of the financing, how much cash you have, and how much cash flow you need to pocket each month from the business. In most cases, it makes a lot of sense to finance the business. So, if you're looking at your financing options, here are a few choices for you to think about.

Owner Financing

Probably the best bet for financing a used coin laundry is to get the seller to hold a note for some or all of the purchase price. Now why would a seller agree to do this? I mean, come on, they want out and they want the money yesterday, right? Well, maybe not. There are some tax advantages for a seller to receive payments for the business over time. If the seller has a low W-2 income, getting paid all cash can throw the seller into a higher tax bracket and a good portion of the money would go to Uncle Sam. How do you think your tax bill will look if we added an extra $250,000 to your income this year? Wouldn't it look a lot better if you spread that out over, say 5 to 7 years? The other nice thing about owner financing for the owner is that they still receive a steady stream of income, but now without the "headaches" of having to run a business. For you, as the buyer, you don't have to try to "qualify" for a loan or deal with a mortgage company. In addition, this gives you more piece of mind that the business is really doing the numbers that the seller is claiming, because in a sense, the seller now has a vested interest in your success. I like to think of owner financing as a "Win-Win" and it makes for smart business!

Home Equity Line of Credit (HELOC)

With the run-up of home prices over the past several years, you may find yourself in the enviable position of having a substantial amount of equity in your own home or a piece of rental property that you own. If this is the case for you, you're in luck, because using some of that equity to purchase a business that generates monthly cash flow is a really smart idea. First of all, that equity is just sitting there, not making you a dime. By using it for a Laundromat, you are now going to turn that equity into a stream of income. I like HELOC's because the interest rates are usually lower than those of traditional business loans and the loans are easier to qualify for, especially if the property is your principle residence. Plus, many times, a HELOC will have the option of paying interest only on your payments, maximizing your Net cash flow after debt service and increasing your overall ROI. This is the option we used to purchase our 1st store.

Small Business Association Loans

Probably the most common loan for a business of any kind is an SBA loan. Generally, if you go for an SBA (Small Business Association) loan, you can expect to have the financing be a full documentation loan. They generally will require 2 to 3 years of your personal income tax returns and may require you to use your primary residence as additional collateral. They generally want to see at least 2 years financial records on the business (Profit & Loss and Balance Sheets), plus the tax returns of the seller. If the store has had declining revenue over that period, there is a good chance that they will decline to loan, or require more of a down payment. Many times if the numbers look good you can get by with putting down as little as 20%. The interest rates on SBA loans are usually 1.5 to 3 % above the prime rate depending upon your credit. A word of warning, SBA loans can take anywhere from 45 up to 60 days to close, so make sure your escrow period is long enough to account for the lengthy funding process of an SBA loan if this is your choice of funding. In addition, an SBA loan could become a problem if you own a lot of rental property because it is highly likely that you will have a lien put on all rental Real Estate you own.

Private Investor Financing

Sometimes you can obtain financing from private investors to help you with your purchase. This can come in several forms, but here are a few of the more common ones.

Hard Money Loan (HML) - These are loans made many times by private investors in the secondary loan market to those who may have a hard time qualifying for a traditional SBA loan. HML's generally are pretty expensive with interest rates ranging from 2 to 5% above the prime rate. In addition, they tend to be shorter in length; usually the terms are 24 months or less, and often less than a year. Also, it is not uncommon for the loan to cost from 1 to 5 points (or % of the face value of the loan) up front. Remember, I said it was expensive! However, these loans can fund in as little as 3 days so if you need the money fast, this could be an option.

Another type of private investor funding is to offer a Promissory Note (Prom Note) to an individual or group of investors. In this case, the lender would hold a note for say 5 years, at maybe 10 to 15% interest. In most cases, you need only make the interest payments either monthly or quarterly, with a balloon payment at the end of the term of the loan. The problem that most buyers have is finding people to lend them the money. There are many investment groups out there looking for decent returns and many of the members have idle cash looking for investments, so you could start there. Also, think of all the people you know who might have some extra bucks lying around not making them much money. It is not always easy to find the investors but when you do, these investors could become your potential money partners for other projects you work on in the future, so start making a list of potential investors and begin educating them on this type of investment opportunity. For them it sure beats 5% in a money market fund and for you it is essentially a no or low documentation loan!

The last private investor funding I will bring up is a direct limited partner in the business. Oh, did I say that? You mean give up a piece of the business and profits to get the project funded? You bet! Fifty percent (50%) of $4K a month is better than 100% of nothing! Besides, there are ways to structure it so the partner has no say in the operation of the business (I prefer it that way), essentially a silent partner, but one you know about and who gives you money up front. This can be a real smart way to go if you have a good plan to increase the business, as you will both profit well.

The point here is that you can be creative when it comes to financing your store. Of course there is always the option to just pay all cash, but what fun would that be?

Related Articles
  How to Find a Coin Laundromat Business
  The Coin Laundromat Spring Bounce
  Maximizing the Value of Your Coin Laundromat
  Coin Laundromats - Secret to Getting More Customers and Business
  How to Write a Laundromat Business Plan
  The Top Five Things to Watch Out for When Evaluating a Coin Laundromat Business
  The Rise to Stardom of the 1913 Liberty Head Nickel
  The Typical Ways We Often Make Decisions
  Equipment Suppliers - Can You Offer Finance Options To Your Customers?
  Consider Car Finance
  A Few Tips On Car Finance
  Hedge Fund Job: Must Understand Benford's Law
  Tips On Car Finance
  Software Finance for Businesses in the UK
  Five in Finance for iPhone
  What is a Vendor Finance Scheme, and How is it Operated in the United Kingdom?
  How Do African Businesses Get Start Up Capital?
  International Asset Finance - The Options Available To Your Business
  The associated document fees related to a standard UK finance agreement
  Should I just Use My UK Bank For Asset Finance and Commercial Loans?

Article Tags: cash flow, coin laundromat, finance, promissory note



Related Forum Posts
Re: Finance is the primary requirement of business - [quote="rauljoseph":36x8dadn]Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.[/quote:36x8dadn] Good point. I'll just add that if I was going into business for myself and could only have one skill it would be Sales & Marketing. You need to be able to create customers first and foremost. Finance is more of a support function for entrepreneurs.
Finance is the primary requirement of business - Finance is very important in a business. It is all about managing the business' money and other assets. Finance includes the study and analysis of processes, financial institutions, markets and instruments that are involved in the transfer of money or anything that has a monetary value among consumers, businesses and government.
OT: A pocket coinholder - Many years ago, I picked up a pocket coinholder. Coin carrier - I'm not sure of the correct term. I think I may have gotten it through Sharper Image, but actually I'm not sure where I got it. But I loved it. It was a small black plastic square, with four spring-loaded columns so you could stack a certan number of quarters, dimes, nickels and pennies in each column. It either broke or I lost it, and I've been searching for something similar ever since, but have been unable to find it. Anyone know what I'm talking about, and where I could get one? If not...someone do some reverse engineering and build one - properly marketed I'm sure it could take off!
Which kind of industries are you interested in? - Ecological or E-business or Investment or Finance or Management or Non-Profit or Retailer or others.
Re: Ideas For Business - Stas and lucy, Could you guys give us a recap of your entire business idea as it stands now. Seems like it morped a bit. Let us know: 1. Start date 2. Ways you will Market 3. What you will offer 4. How much will your charge for your offer


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Your Local Small Business Online Marketing Funnel

Work at home Opportunities for the Disabled

Download a template or see a lawyer?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.