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Financing

While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second or third. Whether you're starting a business or expanding one, sufficient ready capital is essential. How “sufficient” your capital is and how “ready” you are to part with it are all part of preparing yourself to get funding.  In the feasibility considerations section, we discussed money as a key consideration prior to selecting the car wash model in which to invest.   

It is unusual to be able to get into the business without some cash available.  Occasionally, one party is able to secure equity in the business by earning it through day-to-day work, or working on behalf of other capitalized partners.  This is often called “sweat equity.”  This situation is uncommon.  Most often, you will need cash to secure traditional financing, most SBA financing and most funding from other people.  This demonstrates your commitment to make the business succeed.  Beyond cash for a down payment, you will need:

  • Interim Financing - Often called construction financing or bridge financing which pays for the construction of the facility until start up.
  • Long Term Financing - Usually a long term note (loan) that results from converting the construction financing upon completion of the project.  It becomes your monthly debt service not unlike a household mortgage.
  • Equipment and Fixture Financing - Sometimes this can be rolled into the long term note but most often is paid for in cash and used as collateral to secure the long term note.  This is usually because the funding source regards equipment’s service life and depreciation schedule as five years and will not finance its value on a long term note. 
  • Reserve Financing - Used for contingencies. This is usually a condition of the long term note that requires a specified amount on hand in an account at all times.  This gives the funding source confidence that your business is successful if you are not in need of the reserve to operate.
  • Operating Capital - Feeds your business until it is up and running.  Sometimes the funding source will finance your operating capital and sometimes they will not.  Nonetheless, you will need it. 

There are typically three ways to finance a car wash project:

  • Traditional bank financing
  • SBA Loan
  • Other People's Money

Traditional Bank Financing

A traditional loan will require a loan-to-value ratio (LTV) of 75%.  The LTV is the ratio of the fair market value of an asset to the value of the loan that will finance the purchase. In this case, the investor must have 25% of the fair market value or “build cost” in cash and the bank will fund the remaining 75%. Do not forget start-up capital and operating capital.  Start-up capital covers items like furniture, brooms, mops and chemicals, usually costing under $10,000.  Depending on the model you choose, operating capital ranges from $25,000 for a self-serve wash to $100,000 for an express exterior to $200,000 for a full-service wash.  You can move forward with less, but not having operating capital is very nerve racking and can lead to business failure. In addition, traditional financing can sometimes be difficult to secure for new investor start-ups even if you have the money because the bank is concerned about your overall business acumen or specific experience in small business operations or specifically in the car wash industry.




Small Business Administration

Consider a Small Business Administration (SBA) loan as an alternate source for funding.  There are two basic types of SBA loans; a 7a and a 504.  In a 7a loan, a local lender and the SBA team up to present the investor with options.  In this case, the lender, not the SBA, actually makes the loan.  Behind the scenes, the lender offloads some risk to the SBA in order to be comfortable underwriting the loan to your start-up business.  The advantages of using a 7a are two-fold.  First, there are no job creation criteria and second, you establish a local banking relationship that will serve you well as you operate your business. 

The SBA underwrites a 504 loan directly.  It is a great program for up to 1.5 million dollars but it does have job creation criteria that need to be met.  For further information, visit www.sba.gov for complete descriptions and criteria. 

Don't forget that the International Carwash Association is comprised of 2,000 of the best car wash professionals in the world. ICA member events provide unique opportunities to connect with other car wash professionals, while education opportunities help car wash professionals take their business to the next level.
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