Most, but not all, of our loans are SBA guaranteed. We also finance car washes on a conventional basis.
There are some serious advantages to SBA-guaranteed loans for you:
1. Lower overall down payment. Our loans usually
have down payments that are no more than 20% of the TOTAL Project
Cost. This can greatly lower your overall cash out-of-pocket and
increase the rate of return on your investment. Conventional
loans most often have down payments of about 30% or more.
Conventional loans often do not finance the loan soft costs, where a
SBA-guaranteed loan includes the loan soft costs within the loan.
So, a SBA-guaranteed loan reduces your overall out-of-pocket investment.
2. No "payable upon demand" clause. Very important. Unlike SBA guaranteed loans, most conventional loans have these "demand" clauses. A demand clause allows the lender to require immediate full payment (loan payoff) in the event that the lender changes its loan standards or just needs the cash to meet its liquidity requirements. A SBA loan does not have any demand clause.
3. Longer amortization schedule. Commonly 20 to
25 years. You can pay the loan faster if you wish.
Conventional loans often have a maximum 15-year amortization schedule,
which can make cash flow difficult during slow periods.
4. No early balloon payment. (No early maturity.) This eliminates loan renewal costs, car wash appraisals, and lender points in future years. Since SBA-guaranteed loans are "fully-amortizing" (do not have early balloon payments) you won't face the stress and time-consuming chore of renewing your loan in a few years as you would need to do with a conventional loan.
5. Easy 5-3-1 prepayment penalty , but only if you prepay more than 25% of the loan in any one year or if you pay off the entire loan early. The prepayment penalty is calculated on the amount that is in excess of 25% of the balance, and is 5% in the 1st year, 3% in the second year, and 1% in the third year. So, you could pay the loan off in as little as 4 years with no prepayment penalty.
6. One-time close. If the loan is for building a new car wash you close the loan once before construction, then without a second closing begin the amortization schedule (repayment) after construction is completed. You have to sign only one set of documents, work with only one lender, and attend only one loan closing. In addition to the convenience of a single closing, this also saves you money on closing costs. (Nice!)
7. SBA-guaranteed loans are assumable with a relatively simple application from the person assuming the loan.
8. Appraisals are generally done on a "going concern" basis rather than "physical assets only" (land, building, and equipment) basis. This is one reason why a SBA-guaranteed loan enables you to make a lower down payment than you would with a conventional loan.
9. The lender will not require you to maintain any deposits with them. SBA-guaranteed lenders are less concerned with deposits than commercial banks.
10. The lender will not require you to maintain as additional collateral any Certificate of Deposit, nor any other cash equivalent.
11. The lender will not require you to maintain any certain minimum or maximum financial ratios. Usually there will not be a minimum required "Debt Service Coverage Ratio" and no maximum "Debt-to-Worth".
12. SBA-guaranteed ("7a") loans consider ALL costs of your project to be a part of your Total Project Cost from which the down payment is calculated. Conventional loans typically do not consider the loan closing costs or working capital to be a part of the Total Project Cost. With a 7a SBA-guaranteed loan the Total Project Cost includes loan closing costs and working capital (operating cash), not just the purchase price if you are buying, and not just the hard costs if you are building. This allows you to make the lowest overall capital injection (lowest overall cash down payment) into your new car wash.
13. You may be aware that all banks have a limit to the amount
of money that they can lend to any one lender (you). Doing your
SBA-guaranteed loan, either '7a' or '504', with a lender other than your existing bank allows you to preserve your total
loan availability at your existing bank. This is very
beneficial if you are in a line of business in addition to car washing
(residential development, commercial development, wholesaling, etc..)
that requires you to borrow for that business.