- Primarily For Newcomers to the Car Wash Industry -
If you would like clarification of any of these questions or answers please call Alan Bussey at 817-903-876-2308 or e-mail us at AlanBussey@CarWashLoans.com.
1. What loan terms do you offer for car washes to be constructed?
For someone new to the industry, whether buying or building, we can arrange a loan with about 20% all-cash down. This is the lowest down payment available in the lending industry.
Every car wash financing situation is unique. It may be possible for you to put down less cash than 20% if you have other good marketable collateral to offer in lieu of a part of the 20%. This other collateral is typically real estate. But the typical minimum cash investment is 15%, plus other collateral to substitute for the 15% to 20% customary down payment portion.
The repayment term is a fully-amortizing term of 20 years (3/4 of the cases), up to 25 years (1/4 of the cases). We work to get you the longest term possible. These loans are fully-amortizing, just like most home loans. There is no balloon (early maturity) payment and no 'demand clause'. You can pay the loan faster than the schedule if you wish.
rate on a car wash loan below $1million is normally between
Prime + 2.0%
and Prime + 2.75%, variable, with Prime + 2.5% being common.
today (as of
Each loan rate is determined on a case-by-case basis. The rate and other terms are unique to your situation and to your specific car wash. We design each loan structure to your specific circumstances. We work to make the loan in your favor. We work for you, not for the bank or the finance company.
We have fixed rate programs for larger loans, generally loans above $1million. Most conveyor car washes can be financed with fixed rate loans. Even if your project is not ideal for a fixed rate loan we can explain to you how to "fix" a variable rate to minimize future variable rate increases.
Fixed rate programs are based upon LIBOR, T-Bill, SWAP, and Federal Home Loan Bank rates, but the rate that you actually pay is about the same regardless of the index. A lower index usually just has a higher margin above that index than a higher index, so the rate comes out to be about the same.
If you are constructing a new car wash the most common interest-only construction period is 6 months, but we make this up to 12 months in snow belt states and in certain other instances.Interest during the construction period is calculated only on the amount of principal outstanding, the funded loan balance, at the end of each business day and is paid monthly from the loan. You do not pay interest "out-of-pocket" during the construction period: construction interest is paid from the loan itself. Normally, the construction period is longer than it takes to build and open the car wash, so you will likely have some time to generate cash from operation of the business before you need to start making loan payments.
but we can often pre-qualify or pre-approve your loan over the
about 15 minutes.
Before you call us, please remember that if you are buying or building, and if you are not already in the car wash business, you'll need to make a cash down payment that is about 20% of the Total Project Cost.
If you have the down payment, or can fairly easily get the cash down payment, and if your credit history is very good, the chances are very good that we can finance your purchase of an existing car wash or your construction of a new car wash.
We prefer that you have at least a Letter of Intent (Offer to Purchase) signed by the car wash site land seller before you call us. After all, if you are not in agreement with the seller on purchase price there is little reason for us to talk.
If you are building, already own the site land, and if you bought the land fairly recently your equity in the land, based upon your original purchase price, will count dollar-for-dollar toward your down payment. If the land cost is less than 20% of the Total Project Cost you will probably need to make up the difference with a cash down payment so that the total of the land cost and the cash down is 20%.
3. I don't have much money, but I have equity in other commercial property, in my home, and in a rent house that I own. Can I refinance my other properties to get the cash down payment for the car wash?
Your new personal debt from the refinancing is analyzed along with any other personal debt that you may have. Borrowing your down payment is acceptable as long as you can comfortably pay the loan payments from your present personal income without considering any income from your new car wash. Generally, your personal loan payments and other personal fixed obligations need to be no more than about 40% of your personal gross income from sources other than from the car wash.
We recommend that you NOT borrow any money for your down payment that will appear on your credit bureau report until after you have discussed this with us. It might be best in some cases not to borrow any money for your down payment, but instead just use personal assets as additional collateral for the car wash loan.Do not use credit cards to borrow for your down payment! This is especially frowned upon by the lenders. The lenders assume that you must repay credit card debt in a much shorter time that real estate refinancing loans.
NO! Do NOT contact your local SBA office and do NOT contact your local Certified Development Company directly for ANY reason.
First, particularly with regards to fixed rate "504" (five-oh-four) loans, if you go to a local CDC and/or SBA office, they CAN get a 504 loan 2nd lien debenture approved even without you having a bank approval first. But, unfortunately for you the CDC/SBA approval will be under the CDC's/SBA's conservative terms and conditions, which is not good for you.
By getting the CDC/SBA approval first you are effectively tying the hands of ANY bank or finance company to get approved what would likely be a better overall loan structure for you. We have seen this exact scenario a number of times. NEVER go to a CDC or SBA office and NEVER let a CDC or SBA approve a 2nd lien loan (effectively a complete 504 loan structure), without first being completely satisfied with a commitment letter from a bank or finance company.
Getting a loan structure approved by SBA/CDC first can easily cost you tens of thousands of dollars more cash down payment, even more than $100,000 on larger car washes, and can easily and unnecessarily tie up your personally owned assets as collateral.
Second, truthfully many of the SBA and CDC offices prefer that you work through the lender. They are not usually organized to work with applicants directly.
Third, you will not learn any more about the SBA programs than you will from your experienced lender (hopefully us!) - so save your time.
Fourth, and this happens much more often than you might think, if you contact these offices directly you may (probably will) inadvertently reveal information about your car wash project or about you that may come back to haunt you later when your application is formally presented. It is much better to let the lender make all of the contact with the SBA offices for you. In this way your loan application information is presented in the best light.
am trying to
minimize the amount of my personal money that I use ‘out-of-pocket’
closing the loan. So, can I wait until after the loan closing
to complete (and pay for) the construction plans
and finalize the construction contract?
No. You will need to have the plans completed and the construction contract fully signed prior to loan closing.
The lender will submit your architect prepared plans and specifications to a third-party construction management company to confirm that the project can be completed with the amount of money that you have budgeted for construction. Second, the construction contract must be completed and signed so that all of the loan closing documentation, liens, title policies, etc. are prepared using final numbers. It is difficult and costly for you to have the loan documentation changed. By having the correct construction cost identified and the documents prepared correctly just once prior to loan closing could save you a considerable amount of money. As long as the cost of the architecture and engineering work has been included in the Total Project Cost, these costs can be counted toward your cash down payment dollar-for-dollar or those costs can be "refunded" to you from the loan proceeds at closing.We CAN get your loan approved (not closed) with at least a land purchase contract, a Site Plan and Floor Plan (on 8 ½” x 11”, or 11” x 17” paper), a ‘single-page construction estimate, and an equipment quote or contract draft.
6. On my
Statement should I show ALL of the cash, ALL of my other assets, and
ALL of the
liabilities that I REALLY have? I am concerned that if I put too
cash and liquid assets on my personal financial statement that the
require me to make a larger down payment. I am also concerned
that if I
show all of my real estate assets that the lender will require me to
real estate assets other that the car wash as additional collateral for
wash loan. And I am concerned that if I show all of my personal
that my loan will be declined. Do I REALLY need to show
am new to the car wash industry. I really only have enough cash
savings and from refinancing my house to put down 15% of the Total
Cost. I don't own any other real estate. Can I get a car
with 15% down?
Probably not. For newcomers, even if you have an excellent credit history and excellent income from a job or other businesses the banks and finance companies generally want a 20% minimum cash down payment. While ours do not, many banks and finance companies want a 30% minimum cash down payment.
So, the 20% cash down payment that we offer is already the lowest in the lending industry.
If you have less than 20% cash down payment, but you DO have other real estate collateral to offer, we should be able to get the loan approved. In other words, if you have about 15% cash down and you can offer marketable real estate as additional collateral (in addition to the subject car wash) we should be able to get the loan approved. Normally the additional collateral needs to be a first lien or a strong second lien - usually on a single or multi-family residence. The market value equity in the additional real estate collateral usually needs to be 1.5x (150% of) the cash down payment being substituted.
If you have substantial other real estate collateral to offer, a very few lenders might allow you to put down only 10% in cash, but in almost all cases the minimum is 15% even with substantial additional collateral.To accumulate the down payment many new car washes to be constructed have more than one owner, some of which can be passive investors with no management responsibilities.
Yes, to a limited extent it is possible to use equity in your house and other properties as a down payment without actually pulling the equity out of the house and other properties.
the 'banker's' formula for calculating the equity in additional
((80% times the Market Value) minus Prior Liens). A lender is
it allows even a 2nd lien to substitute for down payment, so don't
lender to accept a 3rd lien, no matter the value of that 3rd lien.
The 2nd lien position(s) in additional collateral would have to be such a large percentage of the value of the additional collateral that there is no question that the lender could foreclose on the additional collateral, pay off the additional collateral 1st lien, and still have plenty of value to pay off any deficit from foreclosure of the subject car wash 1st lien. That can be a tall order.
The best thing MAY be to get a 2nd lien on your home or refinance so that you have enough cash to make a down payment of at least 10% on the wash. Follow the formula above to make sure that you have at least another 5%, 10%, or more to offer from the 1st or 2nd lien on the additional collateral.
Note: The number one criteria for the lender making the loan is the projected Debt Service Coverage Ratio (DSCR). The car wash and additional collateral 'Appraised Value' is only a secondary consideration. The DSCR is the historical annual NOI (EBITDA) divided by the annual car wash loan payments. This ratio needs to be AT LEAST 1.2x. The higher the loan amount on the car wash, the higher the loan payments, and therefore the lower the DSCR. The trick is to get the loan payments low enough so that the EBITDA (after annual owner withdrawals) is AT LEAST 1.2x the annual loan payments. In a very small percentage of cases the CASH down payment will need to be at least 20% or more of the Total Project Cost (the Purchase Price plus the Closing Costs) in order to calculate a satisfactory DSCR.
Generally you need a credit score above 650. We can work with delinquent accounts from the distant past. It is important that you continue to make all of your payments on time because that will quickly increase your score.
If one partner has a weak credit score this can be offset by strong credit scores from other partners.
need to have revolving credit card debt less than $10,000, preferably
$5,000. Higher credit cards are
acceptable for good reason.
In many cases, yes. Of course, the more distant in time the better. We will NOT likely be able to finance you for a car wash if your bankruptcy has been within the last three years
If you have a past bankruptcy please tell us about this in our first telephone conversation. We will discuss with you your specific case and the impact that this might have on your car wash loan application. We have successfully worked through these situations on previous car wash loans.The best bankruptcy situations from the lenders view is those where the loan applicant re-affirmed all of the personal debts listed in the bankruptcy with the exception of the primary debt that caused the applicant to file for bankruptcy.
11. What are some things
that I need to do in my business plan?
receive a number of car wash business plans. Some
are very good, others not so good. A good
business plan does not have to be
overly detailed or overly lengthy. The best ones are fairly specific
and do not
make statements of glowing generality.
(Never use the word ‘dynamic’ in your business plan. To a lender this word is equivalent to
The most important parts of your business plan are: 1. Site Selection, 2. Advertising and Promotion, 3. Competitor Analysis, and 4. Management and Operations.
projected balance sheet is not necessary in your business plan since
analysis software automatically creates that from the total project
down payment (or equity injection) information.
More important than the balance sheet is a thorough listing of your project costs. Don't forget engineering, architecture, legal costs for rezoning and replatting, off-site utility construction, site preparation, appraisal, environmental study, and permitting.
If your car wash will include an in-bay automatic or a conveyor, or if you plan to have fleet accounts the business plan needs to have clear marketing plan. Discuss specific advertising programs and the cost of those programs. If fleets, discuss (name) specific fleets and include letters to/from those fleet representatives that indicate their willingness to do business with you and the estimate of the number of vehicles they will wash at your business.
A business plan should include as exhibits copies of the land purchase contract, construction quote, and the equipment quote. These are often left out of business plans. Without an actual written quote it is difficult to say just what these costs will be. We recommend that you have the site plan, floor plan, and elevation done to get a good construction estimate. Of course, you won't be able to get a final construction estimate or quote until the contractor sees the final complete set of drawings and specifications.
The business plan needs to have clear advertising and promotion plan. Discuss specific advertising programs and the cost of those programs. If fleets, discuss (name) specific fleets and include letters to/from those fleet representatives that indicate their willingness to do business with you and the estimate of the number of vehicles they will wash at your business.
Many lenders will not even consider financing a car wash for investors who do not have previous significant experience in the car wash industry. Attach documents that show that you have or are scheduled for training. You may also have a Consulting Agreement where the consultant will spend time with you before opening and after opening. On-the-job training needs to be evidenced by letters from owners of car washes where you have had this work experience. Any training at the factory needs to be evidenced by a Certificates of Completion.
For our car
wash loan applicants we can
easy-to-use preformatted business plan outline.
The outline is in question and answer format so that you can
think about and
important issues quickly.
12. I need to prepare cash flow projections for the new car wash that I am planning to build. What are some things that I need to do?
revenue projections should be the direct result of numerical
upon the demographic information and/or traffic count information. Show
calculations. Include a demographic report (Claritas) and traffic count
your business plan.
EVERY revenue and EVERY expense item should be supported by an attached assumption listing. List each expense and how you estimated that expense. Get written quotes for insurance, pit cleaning, dumpster service, accounting and tax return preparation, alarm/security service. You may be able to get a written estimate of your property taxes from the appraisal district, or at least a schedule of the tax rates so that you can calculate the property taxes. Attach these written estimates and quotes to your projections as exhibits.
A sensitivity analysis on your projections might be important to you or partners, but we think that a break-even analysis is the best.
Do not include your projections in the body of your business plan. The reason that you want to keep them separate is because you will likely need to reprint one or the other independently, so you can save yourself much time by not having to edit and reprint the business plan simply because you have made a change in your projections.
inadequate projections include only a single-year annual revenue
annual expenses, which does not accurately describe the first year or
business. The best projections are on a monthly basis and show a
increase in revenue over time.
We like to see two full years of monthly projections with a gradually increasing revenue and with monthly seasonality factors. Be sure to include property tax expense and a realistic cash withdrawal and/or salary for yourself.
For our car
applicants we can
provide a preformatted cash flow projections template that
includes a startup curve, seasonality, and sample assumptions.
We can usually finance your purchase of the land with a ‘bridge’ loan. In this instance the car wash construction and permanent loans must be approved first. While you are working to complete your construction plans, getting all of your construction and equipment contracts completed, and getting your permits approved you can close into your bridge loan to get ownership of the land.
The down payment for the bridge loan is usually the down payment that you will need for the entire project, which coincidentally is approximately equivalent to 50% cash down for the land. For raw land speculators the down payment for land is usually 50% anyway, so the banks generally go along with buying the land for car wash early if necessary.Before buying the land early you want to have a written letter from the municipal Zoning and Permitting Office that the zoning is correct and that they see no serious issues that would prevent you getting a construction permit. Prior to closing on the land you’ll want to have at least a Phase I Environmental Survey completed and have your geotechnical (soil testing) report done.
In some cases, yes. This is handled on a case-by-case basis.
But, please be aware that almost no lender will allow you to function as your own contractor if you do not have experience constructing a car wash. There are some unique aspects to building a car wash, and there are some lien issues and insurance issues with general contracting. We have had some contractors who have at least gotten a "straw" contractor to handle the paperwork for a nominal amount, typically $10,000.
If you are a licensed general contractor and have experience with construction projects similar to your car wash then you should be able to act as your own general contractor. You will need to go through the bank's customary contractor approval, which is based upon the AIA Form A305, Contractor Qualification, form. Remember that no bank or finance company will allow a ‘self contractor’ to show a profit on the bid or the schedule of values.
otherwise qualified contractors simply do not want to handle their own
construction, preferring to concentrate on their own contracting
These days the lenders really want you and your contractor to use the standardized construction contract form and other important forms provided by the American Institute of Architecture (AIA).
Construction contractors are very familiar with AIA documents - these documents are commonly used in the commercial construction industry. Often your architect or contractor already has these forms or the lender will provide them to the contractor. The forms are copyrighted but can be easily purchased at a low cost through the AIA chapter in your area in your state.
Importantly, the contract between you and the contractor must be a "fixed price" contract, not a "cost plus" contract. Lenders usually require that the contract be on the "Standard Form of Agreement Between Owner and Contractor - Stipulated Sum" (AIA Document A101).
As is customary in the construction industry, the contractor and the sub-contractors will be subject to a 10% retainage that is withheld until ALL work is completed. The retainage is paid according to state law, but the retainage is normally paid within 30 days of the receipt of the Certificate of Occupancy.
Normally the contractor will need to complete the "Contractor's Qualification Statement" (AIA Document A305). This provides information to the lender and to the 3rd-party construction management firm about the technical and financial qualifications of the contractor to perform the work. You should tell your contractor that the lender will require references and financial information about the contractor as is called for in this document (A305).To receive payment for work performed ("progress payments") the General Contractor completes the "Application and Certificate for Payment" (AIA Documents G702 and G703 (continuation of G702)).
Like the main car wash construction loan there is a cash down payment for the 7a loan. That also must be injected at the closing/beginning of the construction loan.
Some lenders allow up to one draw per week, which is generous. There is a construction loan monitoring (draw) fee, usually 1%, that is calculated just on the construction itself, not the land and not the equipment. Many lenders do not charge per draw request – that is included in the construction monitoring fee. In the event that your or the contractor need a draw not shown in the original draw schedule, that is OK, the bank is flexible on allowing unscheduled draws.
To get your pre-approval done we will need personal financial statements on all of the partners; the first page of the last two years of personal tax returns on the partners; the rough project cost itemization; the street address of the proposed car wash; and a copy of the mutually signed Letter of Intent (Offer to Purchase), the Sale/Purchase Contract, or the land purchase Closing Statement.
Unlike a credit card pre-approval or pre-qualification, a car wash loan pre-approval from me is for REAL. I can discuss your specific business proposal with several lenders. I will then structure your loan to your best advantage. This includes setting the down payment and other equity; determining additional collateral, if any; determining the best interest rate index and margin to suit your needs; determining the best prepayment penalty schedule; setting the repayment term; and determining the construction loan terms. I work to make your car wash loan the best that it can be for YOU, not necessarily for the bank.
the loans that we arrange and get formally approved are identical to
that we got pre-approved at the very beginning of the process.
23. What is the timeline for formal loan approval?
Closing is most commonly governed by the time that it takes you to get your construction permit approval. You do not need to actually purchase your permits before the loan closing because the lender can fund your purchase of those with the first loan proceeds.
The second most common impact on the timing of the loan approval is the time that it takes to get the appraisal completed, which is normally three to four weeks.
The third most common impact is the time that it takes to get your contracts completed.Once the loan application package is completed, including the business plan and the cash flow projections, we can usually have your loan formally approved within 5 to 10 business days. The appraisal can be completed within 15 to 20 business days, and the closing can occur within about 10 business days after receipt of the appraisal and environmental report reviews. So, the total time to close, assuming that you have your construction permits, is about 30 to 40 business days, about 6 to 8 calendar weeks. For a small business loan this is very fast.
© Copyright by Alan L.
Bussey, 1999 through 2009
All Rights Reserved Updated