When building a car wash, one of the most significant hurdles can be financing. Typically car washes cost from $1.5 - $3.5 million including land, building and equipment. While some individuals may have this in their checking account, most seek some type of financing assistance.
A common method of financing is working with a local bank for a conventional loan. Banks typically like to work within a specific geographic area because they feel they know the area better, and can thereby reduce unnecessary risk. In conventional financing, a variety of terms are available, however typically they require 25-30% cash equity, with the bank providing the remainder. Loan terms are often fixed for a short time, then go to a variable rate with 15 to 20 year terms common.
In applying for bank financing, they will require a substantial amount of documentation. You will be expected to give them a complete business plan, financial proforma for the site, appraisals, and personal financial information for all equity holders. You can also expect to be required to provide a personal guarantee on the loan.
It is best to apply to multiple banks for several reasons. First, banks are businesses and competition between them may help you get more favorable rates, terms and working relationships. Second, banks will often initially give positive indications for loan approval, but then upon reaching the loan committee deny the loan. By having multiple offers from banks, it will give you increased flexibility in financing your project and reduce the risk.
An SBA loan is simply a standard bank loan which is guaranteed by the SBA. This reduces the risk a bank must take in providing the loan, and hence can make obtaining the loan easier.
The SBA has different programs and typically requires 10-20% cash equity. More paperwork and requirements will make the SBA process longer than conventional financing, but may make some projects viable that would not be considered under conventional financing. SBA loans typically have higher fees than conventional loans, as well as penalties for selling the wash during the first few years of operation.
Often investors will pool their money to avoid having to seek external financing. While this can reduce long term returns, it can greatly simplify and expedite construction of a new car wash. When working with other investors, the difficult part is ensuring all the partners have very similar goals for the wash and operating philosophies.
Leasing can be an attractive option, because it reduces or eliminates up front equity requirements. A variety of leasing structures are available on land, building and equipment. Unfortunately leasing comes with a fairly high price. Apples to apples comparison with a loan amortization, leasing can be from 10-15%, whereas conventional or SBA loans will run 5-7%. Paperwork requirements from leasing companies can also be less than conventional bank financing.