1 November 2018
Financing laundry upgrades frees capital for front-of-the-house activities
RIPON, Wis. — When it comes to in-house laundries serving industries such as hospitality, long-term care, health clubs and others, there’s never really a great time to replace or upgrade laundry equipment.
Let’s be honest, the laundry isn’t a glamorous facility … there’s a reason it is commonly referred to as a “back-of-the-house” department.
As such, few facilities take a proactive approach to upgrading laundry equipment. Most adopt a replacement strategy that centers on when the machine breaks and can’t be fixed, or if it is too expensive to fix, it gets replaced. Not always a great strategy, since none of these industries can afford to lose a machine—laundry doesn’t stop and the need for clean laundry doesn’t slow.
However, on the surface, the strategy makes sense. Capital should be focused on elements at the front of the house.
Focusing capital dollars on things that improve the guest or patient experience makes total sense. New amenities, services and other items can help grow the business and directly relate to improving revenue.
This is where the value of financing equipment upgrades and replacement can really shine. Financing new washer-extractors, tumble dryers and other machines enables businesses to reach the best of both worlds: keeping capital for front-of-house updates and still getting new laundry equipment.
In addition to keeping dollars focused where they are most impactful, financing delivers additional value, with today’s rates being some of the lowest we’ve seen in some time. Financing is a great answer for most facilities.
When I’ve worked with managers leaning toward paying cash for laundry upgrades, I suggest finance out of the gate and if at the end of the year they have not spent the capital reserves, they can pay off the note.
WHAT TO LOOK FOR
Paperwork and long approval processes are just two of the main reasons I hear from general managers for why financing isn’t their first option. This is why you want to work with a lender who simplifies the process and understands the business of laundry.
Some equipment manufacturers offer financing that starts with a simple, one-page online application for pre-approval. Obviously, anything you can do to reduce paperwork up front is a great start.
Going the pre-approval route also enables you to begin assembling payment information, which will help you in the decision-making process. Worth noting is that a pre-approval is normally valid for 90 days.
You will want to have an idea on how quickly a deal and financing can be put together. Again, this is where some manufacturers, knowing the urgency of getting equipment replaced, can put together a plan within 24 hours, versus a couple of weeks going through a bank or financial institution.
Make sure there is no pre-payment penalty. Many facilities choose to pay off notes early; you’ll want to make sure this is an option. Will the lender include installation and other equipment in the note (perhaps the project is a good time to upgrade water heating systems)?
Beyond that, it’s about having an understanding of the documents you will need, such as a driver’s license, proof of insurance and verification of who the officers are of the business.
We’ve already discussed the advantage of keeping capital on hand to focus on front-of-the-house areas. However, the true benefits that help contribute to making a financed purchase of laundry equipment a true advantage for the facility rest in the equipment itself.
A quality distributor can run an operating analysis that arms laundry managers with the specific savings that may be achieved by upgrading to new, more efficient equipment. Many general managers are surprised to learn that the operational savings can match or even exceed the monthly loan payment.
Facilities also reap additional tax benefits. In addition to the standard depreciation that comes with the equipment purchase, financing the machines allows the interest to be written off as well. There may be other financial benefits for facilities in the form of rebates from utility companies for upgrading to more energy/water efficient machines.
WORK WITH A PROFESSIONAL
Financing a laundry upgrade can be made infinitely simpler by working with a full-service distributor, who can provide all the necessary services under one roof. Having one point of contact, who can guide you through the process and provide accompanying information (such as a laundry operating analysis) that helps a laundry manager sell the need and efficiency benefits.
Financing through a distributor also simplifies financing further as they are best positioned to value the equipment versus a bank.
An experienced full-service distributor will ensure that equipment is properly sized and matched to not only the daily throughput volumes, but also how the laundry arrives. For instance, while volumes may be high, pieces rarely arrive in the laundry at one time. Thus, sizing the upgrade with too large of capacity may slow processing. Often multiple smaller machines best fit the flow of laundry in and out.
Skilled distributors often are knowledgeable about any incentives from utility companies for upgrading to more efficient equipment and can help guide managers through that process to reduce costs even further.
The bottom line is that there are a number of factors to consider beyond just the percentage rate of the financing. We are all busy and anything we can do to reduce paperwork, the approval process and documentation saves time in the end. So, I would recommend to take these factors into account; the lowest rate doesn’t always work out that way.
There’s no doubt of the positive impact that upgrading laundry equipment can have on an operation—guest satisfaction, patient comfort, etc. Despite these benefits, it can be a challenge to spend money on a back-of-the-house department. This is where financing equipment is a smart choice that enables general managers to spend capital in more impactful ways.
When the savings from improved efficiency are factored in, quite often they add up to match or exceed what the monthly payment is for new laundry equipment. However, it’s important for managers to do their homework, as not all finance options are the same.
In a time-is-money business world, they must put a value on the amount of work necessary to apply for and close a finance deal. This is where manufacturer financing programs may have the upper hand in streamlining the process—particularly in the case of a piece of equipment that is down and in need of immediate replacement.
Facilities have finite capital. It’s important that managers spend it wisely and employ financing tools where it makes sense.