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Business Loans For Car Wash

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How To Get a Business Loan as a Car Wash Owner

Car wash owners have done well during the past few years. Globally, the car wash services market was $27.8 billion in 2020, and is expected to grow 6% in the next year. In the United States, the compound annual growth rate is 3.9%. 

More and more Americans are skipping washing their car at home and heading to the car wash. In 1996, 52.4% of people washed their car at home but by 2014 that percentage dropped to 28.4%. During that same time period, consumers taking their car to a professional car wash facility rose from 47.6% to 71.6%. 

The data shows a clear and growing preference amongst American consumers for professional car wash facilities. Technology and mobile apps have been getting in on the business – in one instance, car wash businesses found that joining a membership application app increased their income by 20%. 

Now is the time to open another car wash, install new machines, or add e-tailing services.  While you could have the cash reserves to fund your plans, it’s not always a good idea to use your own capital. If dipping into your cash reserves could make it harder to meet current obligations, or if your revenues have been used to pay off old debt, borrowing could be a smart choice. 

If you’re ready to borrow now, it’s quick and easy to apply online. Before you apply you should know the funds intended use, how much money you need to borrow, and the best loan for your car wash.

Top Considerations Before Applying for Financing in the Car Wash Industry

Taking the time to research your options, develop a business plan, and have a clear idea of how you intend to use a loan’s funds helps ensure a successful borrowing experience. While there are times when you might need to borrow in a pinch, if you’re not under pressure then ask yourself these questions to help guide your borrowing decision.

Are you already an owner or are you looking to open or acquire a new business?

Small business owners looking to open a new car wash or acquire an existing business will have different funding needs than existing business owners.

If you’re buying a business, in addition to the purchase price, you’ll have to pay lawyers to look over and prepare documents, accountants to review the books, and other professionals to help close the sale. The amount of money you need to put down or the percent of the purchase you need to fund through borrowing will influence the type of financing that’s best suited for your purposes. You should likely apply for a large business loan. Most car washes built from the ground-up cost between $1.5 million to $3.0 million to launch.

When you apply to open a new car wash, you’ll need a robust business plan and strong cash flow projections, as well as an excellent personal credit score. Lenders could require that you pledge personal assets – such as investment or retirement accounts – to secure the loan. Give yourself plenty of time to get financing in place before breaking ground.

If you’re already in the car wash industry, use data from past sales and expenses to inform borrowing decisions. Building out cash flow predictions will be easier. Past customer behavior can also help you forecast how adding additional car wash bays could impact your sales revenues.

Additionally, looking at when you purchased existing machinery will help you predict when you might need to borrow to fund equipment repairs or replacements. Sometimes you need to borrow to maintain and keep your business afloat.

Existing business owners have a financial history to include in a loan application. You could have assets to pledge as collateral, such as allowing the lender to file a lien against your building or machinery. And if you have strong credit, banks should be willing to lend.

Borrowing as an existing business owner is easier. With a solid plan of how you’ll use the funding you can demonstrate the increased revenues that the loan will bring into your business. Banks could look favorably on your loan application, though you’ll have to find a lender who works with your industry and understands its ebbs and flows.

Banks demand detailed plans, financial statements, and excellent credit from borrowers. If you lack experience in the timber industry, they’ll be wary about lending to you. Newer small business owners will find it next to impossible to obtain a loan from traditional funding sources.

Why do you need the funds?

Opening a new car wash or investing in touchless machines? You’ll have to locate an appropriate building or lot and cover monthly rent or the mortgage while possibly building from the ground-up or renovating it. Since a car-wash building is a single-use, i.e., it’s difficult to turn it into another form of business, sometimes lenders are reluctant to advance the funds to build one. If you defaulted on your loan, the building could sit empty until they find a buyer who wants to enter the industry.

There will be upfront costs like paying contractors, purchasing equipment and supplies, and training employees. Once you’re open you’ll have to pay utility bills and other fixed expenses before the operation turns a profit. Small business owners expanding or investing in an existing car wash could face many of the same costs.

Here are some of the most popular reasons those in the car wash industry take out small business loans:

  • Purchase, renovate, or build out a new space
  • Buy new machinery, such as touchless or hybrid machines, to attract new clientele
  • Replace existing outdated or broken machines
  • Market a new business
  • Cover operating expenses during lean times

Once you know why you need the money you can make a budget. Comparing that budget to your cash on hand or cash reserves tells you how much you’ll need to borrow.

What can you afford to borrow?

Before borrowing, determine how the new debt will impact your business’s cash flows. After you’ve paid fixed expenses like the mortgage and utilities at your car wash, how much free cash flow is available to make loan payments? Take a hard look at your budget before you borrow so that loan payments won’t harm your business.

Lenders calculate your monthly loan payment by multiplying the capital borrowed by the interest rate, then  spreading that amount over the repayment period. They’ll also add on any fees. If the monthly payment on the loan you need isn’t affordable, scale back your project.

The car wash’s cash flows must cover the loan payments – before, during, and after the project. When putting together your budget and determining what you can afford to borrow, don’t forget to include a plan to pay back the loan. Build in some cushion, too, if there are delays or equipment breakages that impact your bottom line.

Will the project generate a profit?

Before you borrow to fund an acquisition or project – such as converting to touchless – you must have a reasonable expectation that it will make a profit. If you plan on borrowing for a larger project than replacing broken machines or funding daily operations, it should have a positive return.

Anytime you borrow the expected return on a project should cover more than the loan’s cost. The project should also generate more revenue for your car wash in the long run, not just break even. Run a few financial scenarios and determine if the project’s revenues will both pay back the loan and generate a profit.

Establish the funding timeframe

The term of a loan is the amount of time you have to repay the lender. If you select a shorter repayment term, you’ll have a higher monthly payment. This is because the repayment is spread over a more concentrated time.

But even though a longer repayment term would lower your monthly payment, it isn’t always the way to go. You don’t want to still be paying on a loan when you’re no longer receiving the benefits of what it funded.

For example, let’s say you’re taking out a $10,000 loan to cover the cost of adding a new bay. The bay will be fully depreciated after five years. If you took out a ten-year loan to finance it you would still be paying on the loan after it had no value on your books.

For capital investments like a new tunnel system or bay, apply a matching principle. The funding’s term should end when it’s either fully installed and/or fully depreciated.

What is your business and credit history?

If you have poor credit, or have defaulted on a loan in the past, it will limit your borrowing options. Lenders are reluctant to work with borrowers who have low personal credit scores or whose businesses had difficulties in the past. And your business and credit history also impacts the loan’s rate and terms.

Before applying for loans, pull a free copy of your credit report and check your score. Most banks only work with borrowers who have credit scores above 750, at least two to five years in business, and strong financials. Depending on what it says, you may want to skip applying at a bank and go directly to alternative lenders.

You can still borrow with less-than-stellar credit or some hiccups on your credit history, but you’ll have an easier time working with an alternative lender. These lenders work with borrowers that banks won’t consider.

Best Business Loans for the Car Wash Industry

There are multiple loan products available to small business owners, each designed to meet specific needs and timeframes. After asking yourself the above questions you probably have a good idea of why you need to borrow. One of these loans will meet your needs.

Large Business Loans

If it’s time to invest in an acquisition or build a new car wash, look into a large business loan. These loans are perfect for a larger project, with funding amounts between $50,000 to $2 million. Because they’re meant for larger projects, they have a longer repayment period of up to three years. 

Qualifications include a credit score above 530, minimum monthly revenues of $10,000, and your business must have been open at least two months. Within as few as 24 hours after you apply you could have the funds needed to break ground on a new facility.

Merchant Cash Advance

If you’ve transitioned to credit card payments in your self-service bays or from full-service customers, look into applying for a merchant cash advance. With a merchant cash advance, you’re selling a percentage of your credit card receivables to the lender. They calculate how much they’ll advance you on past credit card sales, so you’ll need to provide your past few months bank statements and credit card receipts when you apply. 

Repayment on a merchant cash advance comes from future credit card sales, so it’s an easy loan to repay. It’s deducted from your cash flow in dollars and cents, not a large, monthly lump-sum loan payment. If you have minimum monthly revenues of $8,000 which are mainly processed  through credit cards, you can apply for a merchant cash advance with a credit score as low as 500.   

Equipment Financing

If you’ve already built out the space, or are replacing outdated or broken equipment, and only intend to use the funds for equipment purchases then look into an equipment financing loan. Equipment financing loans have only one purpose – to fund the acquisition of the equipment needed to run your business. 

You can borrow up to $150,000 with lower credit scores, up to $250,000 if you have a higher score. A personal guarantee is required with a FICO score of less than 700. Startups with less than one year in business can borrow up to $25,000, less than two years up to $25,000. 

Since the equipment sometimes services as collateral for the loan, equipment financing loans can have better interest rates than other loan products.

Working Capital Loans

Maybe you need access to funds on an ongoing basis – to make payroll, pay rent during a slow month, or pay for equipment repairs. Working capital loans help pay for day-to-day operations like payroll and utilities. They often take the form of a line of credit. 

Similar to a credit card, a line of credit often has lower rates and fewer penalties. Small business owners draw on the funds as needed and only owe payments when they’ve borrowed.

When you apply for a working capital loan, underwriters look at bank deposits and monthly revenues when making a funding decision. It’s a faster loan application process than a bank loan. If you’re experiencing a temporary cash flow crunch, you could get funded in time to meet current obligations.

Business owners with credit scores above 650 and two months in business can qualify for a working capital loan. 

If applying at traditional banks seems too difficult and time-consuming, consider reaching out to an alternative lender. Alternative lenders best serve the needs of small business owners who have the skills and ideas to succeed but might not have a great credit score or ten years in business. After just a few minutes to gather documents you can apply online now!