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ARDMORE, Pa. — Things go a lot easier when potential lenders, suppliers and partners can decide to take a risk based on a laundry business’ credit history and capability of repaying obligations. With strong business credit, a business can borrow at a lower cost, with more favorable terms. In fact, many small businesses with good business credit have discovered it is possible to get loans without an onerous and often embarassing personal guarantee.

Obviously, business credit is quite difficult to get. For any small-business owner, navigating the credit and lending world can feel like a vicious Catch-22. Most commercial banks and traditional lenders are reluctant to loosen their purse strings until would-be borrowers have proven themselves with a strong credit history. But it’s difficult to develop that good record when no one will lend in the first place.

IN THE BEGINNING

When a business issues or extends credit to another business, it’s referred to as “trade” credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the credit bureaus to create a business credit report using the business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN). The business credit bureaus use this compiled data to generate a report about a company’s business credit transactions. In many cases, those extending credit will rely on that business credit report to determine if they want to extend credit—and how much credit they’ll give.

The major business credit bureaus that compile and provide copies of the reports are:

• Dun & Bradstreet (dnb.com)
• Experian Business (experian.com)
• Equifax Business (equifax.com)

Unfortunately, because information provided to the business credit bureaus is submitted voluntarily—no business is required to send it in—the credit bureaus may never receive much, or even any, information about a coin laundry business’ credit transactions. In fact, many businesses go for years racking up business credit without any of it being reported to the credit bureaus.

ESTABLISHING BUSINESS CREDIT BASICS

Fortunately, there are a number of proven strategies that can help establish the credit worthiness of any laundry business and gain recognition from the credit reporting agencies:

1. If not already incorporated, forming a corporation or LLC (Limited Liability Company) to operate the laundry business, and obtaining an FIN or EIN from the IRS should be considered. Corporations and LLCs afford business owners liability protection, and a business credit profile can be created that is separate from the owner’s personal debts. 

2. Every laundry business should be registered with some, if not all, of the business credit bureaus. Dun & Bradstreet (D&B), for example, is one of the main business credit bureaus and maintains its own business credit score. An established business with an EIN can begin the process by applying for a free DUNS number. The number is how lenders will determine the operation’s creditworthiness (most business credit card and lending companies will ask for a D&B number during the application process).

3. Apply for a business credit card. Although most major credit card companies require that cardholders be in business for at least two years before they will extend credit, there are many small, local banks that are more accommodating to small businesses. They may be even more accommodating if an owner or manager is savvy enough to set up a business bank account with them!

Even though the laundry business may not require more credit cards to finance its operations, it should still apply for more business credit cards. In business, the 5-3-2 rule is key—a business’ credit record is not considered established and solid until it has at least five trade accounts, at least three credit cards, and at least two small loans fully paid off.

4. Comply with all business requirements. Not being in compliance with local, state and federal rules, ordinances, regulations and laws can raise red flags with both credit bureaus and those who grant credit. Potential red flags include such things as a lack of a business license or a phone line. Many suppliers will not grant credit to another business that hasn’t taken the steps to set the operation up with the proper licenses or meet local, state and federal requirements.

5. Financial statements and a professional business plan are a necessity, particularly in today’s economy. These documents are also required by many credit grantors.

6. Finding companies willing to grant credit to the laundry business without a personal credit check or guarantee is also a good strategy. When a supplier grants a business credit, it is important to ensure they report the payment experiences to a credit bureau. This step can help build a business credit report as well as provide a financial foundation for the operation.

7. Manage debt so the laundry business, large or small, won’t experience trouble making payments, which will negatively affect its credit score.

8. Monthly payments to credit grantors will keep a business credit profile active.

9. Get a website. It may not seem like a must in building or maintaining business credit, but D&B now shows and lists websites on credit files. Many banks also use the fact the operation has a website as a positive factor in determining the creditworthiness of a borrower.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a financial adviser for advice regarding your particular situation.

Check back Thursday for Part 2!

NEW YORK CITY — Eastern Funding LLC is marking its 15th year in business finance serving the coin laundry, convenience store, and dry cleaning industries with an Anniversary Celebration on Thursday at its recently renovated offices here.

Ranked as the 36^th largest bank-owned leasing and financing company by the Monitor Listing of the nation’s top bank leasing and financing companies, Eastern Funding is consistently viewed by the laundry industry as a trusted source for financing expertise and tailored lending solutions, the company says.

“I’ve been with EF since its infancy and I’m proud of what we have accomplished,” says Senior Vice President Stephen Gramaglia. “Looking back, we’ve achieved so much more than we imagined. We’ve helped thousands of entrepreneurs achieve their dreams of owning their own business.”

Eastern Funding says it has provided more than $700 million in laundry business funding since its inception in 1997. Most recently, the company launched a Specialty Vehicle & Equipment Funding division to provide lending, leasing, and direct financing programs nationally for specialty vehicles, tow trucks, and equipment.

CHICAGO — Credit is the oil that lubricates the machinery of business. Whether it’s a loan to buy supplies, to support expansion, a capital purchase, or just the need for a short-term loan to meet payroll or other operating expenses, most coin-op laundry owners need to depend on credit at some point. Unfortunately, the upheaval in today’s economy has resulted in a credit crunch that seems to have made it tougher than ever for business owners to swing a loan.

Still, for those in the know, there are enough options available to make the task a little easier. Money may be tight, but business loans are being made every day to those who know how to ask.

“In today’s banking climate, good deals still get done, but with more equity, more collateral and much higher credit scores required of the borrower than in the past,” says Linda Feltman, Pennsylvania State University, Small Business Development Center.

If you’re looking for financing for your coin-op business, now or in the future, here are some choices along with hints on how to greatly improve your chances of coming away with the money you need:

Banks

The first place most coin-op laundry owners turn to when they need a business loan is their local bank. That’s why it’s essential to build a solid business relationship with your bank well before you need to ask them for money. Allowing your bank to become familiar with your business sets the stage for the time when you need to ask for a loan.

“The news media tends to lump all banks together when it come to tight money,” says Bob White, president of Abington Bank, Jenkintown, Pa., “but there are big differences among banks. Like many other small community banks, we have always followed conservative lending practices. As a result, our default rates haven’t suffered and we’re in the same healthy position for making loans now that we were four years ago.”

Even after establishing a relationship, some business owners meet with frustration when the bank turns down their loan application. Most bankers agree that this is often because the owner has failed to come prepared with the information a lender needs to make a positive decision.

“How to find the money to finance a renovation, expansion, or other need is the last thing that many business owners think about when they plan a project,” says James G. Marshall, vice president, Fulton Bank, Lancaster, Pa. “It’s best to have a team lined up behind you when you plan a major financial move — and your bank should be a member of that team.”

How should you prepare for a meeting with a bank loan officer? Marshall suggests that you come armed with:

• Financial statements for your existing business
• Accountant-prepared financial projections and cash-flow analysis
• Marketing feasibility study for the project
• Owner’s personal financial statements and tax returns
• Information on the background and experience of owner(s)

“With this information,” says Marshall, “the bank can give proper consideration to your loan application.”

Be careful to avoid the red flags that may raise concerns in the mind of a loan officer. “One of the things that would turn me off,” says White, “is an applicant who has over-leveraged himself or recently financed the purchase of an expensive asset. And, of course, it’s absolutely essential that the applicant be honest and up-front with all pertinent information.”

Check back tomorrow for Part 2: What happens when the bank says no?

CHICAGO — Making the decision to shift your store’s payment system from coin to cashless, or to a hybrid, can require a great deal of research and planning. There are implementation issues from the outset, and you need to be prepared to market your operation’s changes and educate your customers about the system’s benefits and how they can best use it.

American Coin-Op invites several manufacturers of payment systems to answer some questions that the average self-service laundry owner might have:

ACO: What are the immediate benefits to the laundry owner who decides to go cashless? What are the long-term benefits?

Kevin Hietpas, director of sales and marketing, Dexter Laundry:

By going cashless, a storeowner is trading one set of operational challenges for another. One item that many owners have reported as a major immediate benefit is that their collection time in the store is significantly reduced. With only one unit to collect and no change to handle, owners free up time to devote to other management and operational duties.

At the time of opening the laundry, or transitioning to a cashless system, owners should plan on devoting time to educating attendants and customers on use of the system. Some customers might be resistant to (use) the new system, and making the transition as smooth as possible with friendly help and support will make sure that the laundry doesn’t experience a loss of customers.

Amy Gitlin, president, ESD:

Cashless to some might mean not accepting coins, only smart cards, in your Laundromat, while cashless to another would mean eliminating coin and bills from the Laundromat (and) using credit/debit cards as a means of conducting store transactions. Either way, a self-service laundry owner would reap a number of immediate benefits.

By removing coins or other currency, one eliminates the temptation for theft or vandalism—this also includes employee theft. Another benefit is the reduction or elimination of collecting coins and bills. In addition, the laundry’s customers would benefit from the convenience of not needing to find and carry heavy coins. Instead, they would simply carry their smart card or credit cards to complete their transactions.

By going cashless, your customers are apt to utilize more machines, especially your large machines with higher vend pricing. Your customers will continue to benefit using their bankcard (either credit or debit) by earning more loyalty rewards/benefits associated with their card of choice.

The long-term benefits are easier accounting practices for laundry owners and continued customer convenience.

Michael Schantz, president, Setomatic Systems:

We believe that going totally cashless is no longer in the best interest of the laundry owner. We have been developing these types of systems since 1995, and over the last few years it has become evident to us that a hybrid system is more advantageous to the storeowner than a totally cashless system.

The average Laundromat user does not want to purchase a card that can only be used in your store. Offering the Laundromat customer the convenience to pay with any method they choose is what drives more customers to the laundry.

Our credit card system allows customers to pay for their wash by using coin or their own credit or debit card. No unhappy customers walk out the door because they don’t want to buy a card.

It is true that the storeowner has the convenience of never collecting coins in a totally cashless system, but he or she should be looking to maximize revenue. To do this, you need to give your customers the added benefit of paying by credit card or coin.

The consumer has been conditioned to pay by credit/debit card for even small purchases like a cup of coffee today, so why should they not have that convenience in a Laundromat?

Steve Marcionetti, product manager, Card Concepts:

The obvious immediate benefit is the time savings and the safety of having central collection. What many people don’t think about is what you can do with the time that was once dedicated to pulling quarters from machine.

For many operators, collecting is the primary reason for visiting the store. With collection reduced to only a few minutes, this time can now be used to pay closer attention to the details that make their store attractive to their customers. This is a great opportunity to take some time to speak to the customers in the store and find out what they like or don’t like about it. Taking this extra time to focus on “marketing” the store rather than just collecting has both short- and long-term benefits.

The more obvious long-term benefits come from two important factors: penny incremental pricing and float.

Having the ability to properly price your equipment and maintain a fair profit margin regardless of the increases in utility costs will ensure consistency. Too many coin operators resist increasing vend prices because they lack the flexibility of penny incremental pricing and ultimately lose profit when their utility costs rise. Only when the costs have risen above what they can tolerate do they consider increasing vend prices, and often it’s too late.

Float is the unspent value that is residing on customers’ cards. For example, most customers will add $20 to their card but only spend $16, taking the remainder home to use on their next visit. Two huge benefits here: First, the storeowner gets to hold that money in their account until the customer returns; second, this unused balance is a “loyalty” factor that will encourage customers to return to the store rather than visit a competing store.

As the owner of four Laundromats myself, I can personally attest to the validity of these two benefits. They have made all the difference in the success of my stores.

Ryan Carlson, director of marketing, WashCard Systems:

There are two reasons to go completely cashless; neither of them benefits the consumer. We have to be clear about why an operator wants to go cashless. The first is security. We’ve got clients who want to eliminate all cash collections from machines because they can’t carry a big enough gun at their store to feel safe. They want to centralize all the money collections into a locked, secure, separate room.

The second one is for an off-site operator, someone who is a “serial” entrepreneur who owns lots of different businesses and the Laundromat is where they’re planning on not spending any time. They hire employees as attendants, and all the attendant does is clean (the store) and educate people on how to use the card technology. You cannot have an unattended store and be 100% cashless; it does not work, period. You use the cashless system for accountability, to eliminate any opportunity for employees to handle money.

Tomorrow: What are some basic questions a laundry owner should ask when considering a cashless store?

To learn more about payment systems:

Card Concepts — laundrycard.com
Dexter Laundry — dexter.com/laundry/products/management/
ESD — esdcard.com
Setomatic Systems — setomatic.com
WashCard — washcard.com

CHICAGO — Has the financing industry changed during the recession? What should an operator know when trying to obtain financing?

Two industry representatives well versed in industry financing tackle these questions, as well as others.

Understanding Your Financial Situation

“Through industry-focused direct lenders and manufacturer captives, competitive financing for qualified operators has remained available throughout the recession,” says JP Nicoletta, Eastern Funding director of sales and marketing. “This holds true for new-store development, replacement equipment and acquisition financing.

“While certain markets/[geographic areas] around the country require greater scrutiny (specifically those in areas most affected by population loss, and financial and real-estate decline), we believe it has been business as usual for this industry. Eastern Funding has not materially changed its lending criteria from before the recession started. In fact, we have grown our loan originations each of the last three years.

“For new stores, we continue to look for cash investments from the borrower (usually 30 percent), and for replacement deals, in most cases, [we] are able to do 100 percent of the equipment invoice.”

Nicoletta says operators tell him that their banks have backed out of financing deals in recent years.

“We do expect community banks to come back at some point; it has not come to fruition yet. Today, financing for our industry is much easier to get from an equipment captive or a company like Eastern that specializes in the laundry industry.”

Be prepared when seeking financing. Eastern requires a complete financial package for deals larger than $100,000. This includes a credit application, personal financial statement, federal tax returns (business and personal), bank statements, accurate cash flows for existing stores and projections for new laundries. “Supporting records such as contractor estimates and utility bills (for an existing store) also help.”

Are you worried about being a “bad” candidate for financing? “Any deal where a borrower has little invested, either in the financing request or the business itself, is a concern for us. We are also looking closely at a store’s profit potential and cash flow. Operators need to be profitable, and strangling a business with too much debt is a recipe for trouble.”

Assuming there is adequate investment and/or equity in the business, it’s important for an operator to know what is in their personal credit report, he adds. “If there are any missteps or issues out there, it is always best to know about them and have the ability to explain them. If there are mistakes on your credit report, it’s better to take up the fight to correct them and show a lender your progress, rather than to have a lender bring the problem to you.”

Nicoletta says operators can get a free copy of their credit report from three credit bureaus (Experian, Equifax and TransUnion) once every 12 months at www.annualcreditreport.com.

“I [get these reports] every year, and pay the small fee they charge to see my scores. Don’t fall for sites that offer ‘free’ credit reports, which often end up enrolling you in expensive credit-monitoring programs that you usually don’t need.”

When it comes to leasing or purchasing equipment, most operators don’t realize that often times when they lease, they are, in fact, purchasing, Nicoletta says. “Not all leases are created equal and the IRS has defined standards on what constitutes a ‘true’ (also called an operating) lease vs. a ‘lease financing arrangement.’

“The latter is seen most often in the form of $1 out leases. If you see promotions that tout leasing as a way to preserve capital, hedge against inflation, obtain 100-percent financing, eliminate obsolescence and other tax benefits, make sure you get a clear explanation of what all that means. While sometimes correct, this is not always the case. As a lender, I have always been leery of hyping the advantages of financing over leasing and vice versa.”

Consult with tax advisors in such matters, he advises.

“With that said, the sole benefit that I will tell customers when asked is that with a lease, depending on what state they are in, the sales tax can go on the monthly rental payment, instead of paying it all up front.”

Nicoletta believes a misconception exists that financing is not available for self-service laundry operators, or that lenders are unreasonable. “We have all heard nightmares about the condition of our banking institutions, and how the underwriting process for anything is now excruciating.

“As far as residential mortgages lending goes, we’d agree; it’s been rough. The notion that lenders have become unreasonable is often a knee-jerk response to the end of a period where many, now out of business, were irresponsible.”

Check back Wednesday for Part 2 of this story.

CHICAGO — Some of you no doubt are still recovering from the holiday season, and want to lay low. Wanting to spend a little quality time on the couch is understandable.

While preparing your taxes may be low on your priority list at the moment, a little planning can go a long way in ensuring a smooth tax-prep process. Formulating the proper questions today can save you from plenty of headaches tomorrow. Maybe there are some tax considerations that you have never pondered.