Securing Economic Relief During These Difficult Times
According to a recent Coin Laundry Association survey, nearly 40 percent of the laundromat owners who responded indicated that they had applied for federal funding assistance during the COVID-19 pandemic.
“Store owners are very concerned about the uncertainty of when they will be able to operate without restrictions, and when activities and business will get back to ‘normal,’” explained Leo Frazier, vice president of Dexter Financial Services. “Ultimately, owners want to make sure they can meet all of their financial obligations during these uncertain times.
“Financing activity has continued to be strong throughout this COVID-19 pandemic and these times of social unrest in our country,” he continued. “Laundromats being deemed ‘essential services’ has continued to reinforce laundromat owners’ beliefs in this business being one that is somewhat recession-resistant.”
In addition, loan adjustments – whether no payments, interest-only payments, payment plans, etc. – are being made by many lenders on a case-by-case basis, according to Frazier.
For those still considering government-backed economic relief, it’s critical to do your research and determine what options are out there for you and which of those options are best for your specific situation. The U.S. Small Business Administration website (www.sba.gov) outlines three coronavirus relief options that might be applicable to laundry owners. They are:
Economic Injury Disaster Loan (EIDL) and Emergency Advance: This is a loan advance up to $10,000 that is designed to provide relief for businesses experiencing a temporary loss in revenue. This loan advance will not have to be repaid. The SBA began accepting new applications on June 15.
SBA Express Bridge Loans: This loan allows small businesses that have a current relationship with an SBA Express Lender to access up to $25,000 quickly to overcome the temporary loss of revenue.
SBA Debt Relief: The SBA is paying up to six months of principal, interest and fees that borrowers owe for all current 7(a), 504 and Microloans in regular servicing status, as well as new 7(a), 504 and Microloans disbursed prior to September 27, 2020.
A fourth SBA-backed funding option was the Paycheck Protection Program, which was a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The popular PPP program recently had been amended to change the required payroll spend eligible for forgiveness from 75 percent to 60 percent. In addition, the time period during which the funds could be spent had been extended to 24 weeks from the date of disbursement. Unfortunately, the last opportunity to apply for a PPP loan was June 30.
Of course, be sure to talk with your lender to discuss your specific situation and see if some sort of relief is needed and then find a mutually agreeable option.
“Money is still available,” pointed out Chris Michalek of Prime Capital. “In addition to federal funds, check with your state for economic relief loans, which may have an initial six-month deferral, a low fixed interest rate, minimal information request and can be used for working capital. Now is the time to reevaluate your business and see where economic relief can assist with your longer-term viability planning.”
At Prime, they paused new loan activity for laundromat owners immediately after the pandemic hit, in order to focus on assisting owners with securing immediate relief.
“We have since moved back toward a surprising increase in loan requests much quicker than we anticipated,” Michalek said. “Even more surprising are the number of new store projects we’re working on for seasoned store owners, as well as replacement equipment requests for newer store owners. Seasoned owners are using the uncertainty to move forward on long-discussed projects and newer operators appear to be going more in on their newly acquired locations.
“In the immediate aftermath, deferrals were the immediate fix. We’re not receiving loan adjustment requests nearly as frequently as we were in the immediate pandemic aftermath. Surprisingly, for pre-pandemic loan approvals that have not yet closed, many owners have requested approval extensions – the point being that many have paused their expansion plans, as opposed to scrapping them altogether.”
Laundromat owners have now had time to assess the impact the COVID-19 pandemic has had on their businesses and, more recently, to see many of the shelter-in-place orders lifted, according to Jeff Harvey, manager of U.S. underwriting at Alliance Laundry Systems.
“Combined with special financing offers put in place by many lenders to help laundromats get needed new equipment, this has helped encourage owners that now is a great time to invest in their business, as economies open back up,” Harvey said. “Owners are looking for options from lenders to help them out during this difficult time. One of the most common requests is for payment deferral options. Although that is certainly one option being provided by some lenders, it may not always be the best option for you.
“Come prepared with how the pandemic has impacted your business and what you’re looking for. Having an open and honest dialogue with your lender will help them provide a solution that works best for you. There’s no one-size-fits-all solution. Each laundromat owner has his or her own specific needs.”
This month, we reached out to some veteran laundry operators to see how they’ve financially coped with the impact of COVID-19 on their own businesses:
We took a number of steps to seek financial relief, once it became apparent that COVID-19 was truly a global pandemic and our local governments decided to impose stay-at-home orders. What ultimately drove our decision was the excellent work the CLA did in ensuring that laundromats were deemed an essential service.
We consulted with our employees and quickly decided to keep all of our laundries open as a form of public service to help those who depend on laundromats to clean their clothes – just like grocery stores, for example, that chose to stay open so that people had a place to buy food. We also knew that our laundry business would suffer during the lockdown because not all our customers would decide to leave their homes.
In some cases, that meant our business volume was down as much as 50 percent, so obtaining financial assistance was imperative to our survival as both a business and as a service to those who needed it. Our goal was simply to provide our laundry to those who needed it, to keep the employees who chose to continue working employed, and to financially try to break even.
Since we made the strategic decision to stay open, we didn’t seek relief on our rent. Instead, we focused on deferring our loan payments for three months with our lender, as well as applying for Economic Injury Disaster Loan grants and the Small Business Association’s Payment Protection Program loans through the regional bank we have used the past 10 years. We applied online for the EIDL grants, which we received in less than 30 days, and we applied for the PPP via email with our regional bank – in both cases, we applied in early April, within a few days of the programs first becoming available. Like many other PPP loan applicants, we missed the first round of funding, but we quickly received PPP loan funds 40 days after making the initial application, when the second round of funding was approved by Congress.
We have elected to maintain our regular operating hours, as opposed to reduced hours, to allow our customers more opportunity to wash their clothes with less crowds and to also encourage social distancing. However, given that our business volume is down as much as 50 percent, the PPP loans and EIDL grants have been invaluable to help cover our operating costs. Only our utility costs are variable and have adjusted in line to our slower operation. We also are using the PPP funds for our operating costs because we want to maximize the amount that hopefully will be forgiven with the revised rules Congress recently passed.
It should be noted that our equipment loan deferment has been an invaluable buffer. We actually got confirmation on the loan deferment first, and at one point we didn’t know if the PPP loan would ever be approved because initial SBA funds ran out so quickly. In essence, the loan deferment has become an inexpensive insurance policy and that is how we will continue to use those funds until they are no longer required. We will not spend what we saved with the loan deferment unless we absolutely have to.
Applying for the PPP loans was relatively easy, but proving loan forgiveness will most likely be more difficult. The PPP application, for example, is only four pages long, but the forgiveness application by comparison is 11 pages. Although Congress recently passed legislation relaxing some of the forgiveness requirements, it will still take some work on behalf of the borrower.
Anyone who has received PPP loans and has employees should calculate the full-time equivalency now to make sure they allocate and use the funds in the most efficient way to maximize how much of the loan is forgiven. Keep in mind that whatever PPP funds are not forgiven can be returned before the end of the initial interest-free period.
Washin Coin Laundry
Golden Springs Laundry Service
As the recent restrictions were put into place, the biggest impact I discovered was due to my attendants losing their daycare help. This was going to impact our ability to run normal shifts for our drop-off laundry service. As we had already set up a pickup-and-delivery business, we were able to temporarily close our drop-off service, shift to pickup and delivery, and allow our staff to work hours based on their availability.
My next concern was having the staff available at the other end to open the drop-off business when the time was right. At that point, I made the decision to pay the staff their normal hours throughout the downtime. As they were still working reduced hours, they would not receive the unemployment benefit.
So, I applied to the Paycheck Protection Program and received a loan. This is being used to cover mostly wages, in hopes that the loan will be forgiven.
My CPA was monitoring the available funding as the laws were being passed and was in daily communication with one of our local banks. She was able to have all of the paperwork completed and submitted for all of the businesses she works with on the first day. She continues to monitor the updates and is tracking all of the required items to submit for forgiveness when that time comes.
My experience with this process has been seamless, as I already had the right team members in place.
My advice to other owners is to determine what parts of your business should be handled by the professionals. In this case, the laws and forms were changing right up to the hours before the applications could be submitted. I was busy spending the time working on marketing my pickup-and-delivery business and making some renovations to our drop-off area, while my accountant did what she does best.
Su Nueva Lavanderia
Palos Heights, Ill.
I have used two of the programs that Congress and the SBA set up. First, I applied for the Economic Injury Disaster Loan program, where the SBA provides a grant of $1,000 per employee, up to a maximum of $10,000. The funding arrived in about six weeks, and I never pursued any additional funding from this program.
At the time, we were told it would not have to be paid back; however, once the Payroll Protection Program was instituted, that changed. Now, while the grant doesn’t have to be paid back directly, the amount given is to be deducted from any PPP loan forgiveness. The application process was fairly simple, and it only took about 15 minutes to complete the online application.
The other – and far more impactful – program I used was the PPP. This was a real game-changer for many, myself included. I have more than 50 employees, so the loan amount was significant and allowed us to keep everyone working, even though business was down significantly. This was another case where it took the SBA a bit of time to get all of the systems in place to be able to process the loans.
From the time this program was first considered in Congress, I kept in constant contact with my bank to be sure they were on top of it and that I had everything I possibly would need to apply. The program started on a Friday, but my bank didn’t have their systems in place until the following Wednesday, when I applied. The funding arrived in about 10 days. I have used the funding mostly for payroll, but I’ve also used a portion for utilities. Based on the current rules, I’m confident that 100 percent of it – less my $10,000 EIDL grant – will be forgiven.
Currently, I’m interested in the Federal Reserve’s Main Street Lending Program to finance at least one full-scale retool. However, the program is still being rolled out and whether or not laundromats are a good fit for this program remains to be seen.
For those who have not taken advantage take of these programs, I recommend you do so. There is still funding available, and Congress has loosened the requirements for forgiveness, making it a real no-brainer.
Looking to the Future
What do the next several months look like for laundry owners?
“Lenders are pulling back on aggressive financing offers for new store projects,” Michalek said. “SBA-backed lending is seeing very long lag times for acquisition financing. Be ready to bring more money to the table for an acquisition or new store project. Interest rates will remain low at least through 2021. In addition, equipment manufacturers are looking to move metal fast and are quickly devising new financing programs to help new and seasoned owners. Use this opportunity to get federal and state economic relief to help with your longer-term plan for viability.”
Indeed, store operators should definitely not bury their heads in the sand and fail to adapt during these historic times. It’s critical to be proactive in knowing where you stand financially, to model out what your situation looks like at different levels of revenue and to develop a plan as to what will be needed at various revenue levels to get through this difficult period.
“Fortunately, we are in unprecedented times of low rates for borrowers,” Frazier noted. “Often, as is the case of the stock market, the best time to reinvest in your business is when it is challenging and on the forefront of the good times. The COVID-19 pandemic will be mitigated and eventually pass, and changes will occur in how we do business going forward. Those who have adapted and continue to invest will reap the benefits.”
[Editor’s Note: This article is intended to offer general information only. It is not intended to provide specific business or financial advice. Before making any business or financial decision, be sure to contact your accountant, financial advisor, business attorney or some other business professional.]