The down payment is also known as the "equity injection", "equity
"capital injection", or "capital contribution".
For car washes we typically offer the lowest
down payments in the lending industry.
To either build or buy a car wash virtually all lenders require a cash
down payment that is more than 10%. When you hear that SBA loans
10% down, this almost NEVER applies to car washes.
For someone new to the car wash business the normal minimum cash down
payment, even with SBA-guaranteed loans, is 20% of the Total Project
20% includes a "base" down payment of 10%, plus 5% for "special
real estate, plus 5% for a "startup (new) business". Someone
a car wash with a conventional loan (not SBA-guaranteed) can usually
to be required to make a larger down payment, normally 25% or more.
lenders, particularly conventional (non-SBA) lenders not familiar with
industry may require 25% or even 30% or more cash down.
The standard lending industry definition of the down payment percentage
Down Payment divided by Total Project Cost. The Total Project
includes Land, Building, Equipment, and all other costs associated with
the loan and opening the car wash for business. This includes
starting cash for operations. With the hard costs that you
provide to us we
will estimate the Total Project Cost for you.
If you already own a car wash many lenders will consider a location
you are buying or building to be an "expansion of business". For
who already owns a car wash or is otherwise highly experienced in the
it is not unreasonable to expect a lower 15% down payment to buy or
another car wash. This is the base down payment of 10% plus 5% for
purpose real estate. There would be no additional 5% down payment
In some cases, if you are already established in the car wash industry
you may be able to get a 15% down payment. If you are not already
car wash business it is wise to assume that you will need to make a
payment of 20% of the Total Project Cost. The Total Project Cost
constructions soft costs, working capital (cash), and loan costs,
all of the expenses to build or buy a car wash.
So, with us (Car Wash Loans), for people new to the car wash industry
will need to make a cash down payment of at least 20%, with 20% being
common. People who are already established in the industry may merit a
payment of 15%, or even 10% in some cases.
Even with a 20% or 15% cash down payment there may be situations where
additional collateral may be required. This additional collateral
may be a first
lien or a strong second lien on a residence or on other commercial
owned by you. We work to minimize your cash down payment,
where the equity in additional collateral is substantial.
In addition to the down payment, virtually all lenders require anyone
who or any entity that
owns 20% or more of the business to guarantee the loan. Virtually
all small business loan in the USA are personally guaranteed by somebody.
Typical sources of the down payment from personal resources:
1. Cash from personal savings and liquid investments.
the car wash investor plans for this to be the only source of the down
the lender will check to see that this cash appears on the investor's
financial statement. If the down payment amount does not appear
your personal financial statement we will need to identify the source
your cash down payment and the timing of your receipt of that cash.
Do not report less cash on your personal financial statement than you
have. We will not require more cash down payment than the minimum
to do the loan. The more cash that you show the safer that your
looks to lenders. Having excess cash after you make your down
is a real plus, because it gives us confidence in your ability to
through the startup period and in subsequent low cash flow periods.
cash on your personal financial statement is better than less.
2. Cash proceeds from home equity line of credit.
The interest rate on a home equity loan or on a home equity line of
is often less than that charged on any bank or finance company car wash
or any other small business loan for that matter.
If you intend to borrow ANY of your down payment we recommend that you
borrow any money prior to speaking with us about this.
do not borrow using credit cards. We just want to be sure that
money you borrow does not hurt your personal financial statement and
personal cash flow statement.
Normally, it is OK to borrow the down payment for your car wash as long
it can be shown that you can comfortably make the loan payments from
other than the planned car wash.
3. Personal retirement accounts. Before liquidated
or all of your retirement accounts check with your institution,
and/or personal financial planner to understand the impact of doing
4. Sale of personal assets. Homes, land, cars,
5. Prepaid Expenses. Any expenses that you
for your project prior to closing of the loan will count toward your
payment as long as they are customary for the type of project of the
are reasonable for the scope of the project, and as long as they have
included in the Total Project Cost budget. Common items that can
count toward your cash down payment are
prepaid engineering and architectural fees, prepaid equipment
deposits, prepaid permit application fees, etc..
A good schedule to provide to the lender will include the payee, the
date, the check number, a description of the work performed. You
will need to provide a copy of
the front and back of the matching check, and a copy of the receipt
invoice. Beware: Do NOT use credit cards to pay for ANY
project costs. The lenders often will not give you credit toward
the down payment when you use credit cards for project expenses,
because it is difficult to match the credit card expenditure to
specific uses and it is difficult to determiner whether payments that
you make on the account are attributable to the project cost rather
than to non-project uses.
It is wise to open a single checking account for all project
costs. Do not use your personal checking account for that
purpose. Make sure that you get the type of account that returns
your actual canceled checks to you because the lender will require
copies of the front and back of each check and these must be matched to
copies of receipts, paid invoices, etc.. Keep your project
records organized to make it easy on you to provide this information to
6. Equity in the site land that you have owned for more than
In this instance we can usually use the market value of the site,
than your purchase price to establish the equity contribution using the
7. Equity in the site land that you have recently purchased.
If the site land is recently purchased it is customary to use the
purchase price to determine the equity contribution of the site land.
there are situations where an investor might be able to use today's
value even though the site land has been purchased only recently.
a. A car wash investor buys two or more adjoining pieces of
where each one alone is unusable for a car wash (each are unusable as
purchased). The car wash investor has these two (or more)
lots legally replatted into one, making the new single lot more
and now suitable for the new car wash (or other purposes).
b. A car wash investor buys a relatively large piece of property
simply legally replats (separates) a smaller piece of the entire
for the new car wash. In this instance the remaining property
property not used for the car wash) is sold, held for resale, or used
some other project.
If the car wash site that is smaller than the entire owned land is on
near a lighted corner, or fronts onto a road where the remaining
does not, we might be able to show that the car wash site is more
on a per square footage basis than the overall land on a per square
basis. Discuss this with us early.
If it seems that the property for the car wash is a LESS valuable part
of the original entire tract many lenders will not give you
the car wash site at the entire (larger) tract average price per square
They may insist upon using today's market value - "lower of cost
market" - for the car wash site..
The market value of the site is determined at the time of the appraisal
the overall project. An appraisal prior to the formal loan
is not necessary. Do NOT have an appraisal of the site done prior
approval of your car wash loan. The site land appraisal will be
as a normal part of the car wash appraisal after your entire car wash
has been formally approved.
8. Employee deferred compensation. Some people who
to buy a car wash from an employer receive a purchase price discount
(cash gift) from their employer under a previously agreed WRITTEN
arrangement. This benefit may be one where the person receiving the
is a longtime employee of a car wash business that he or she is buying.
agreement needs to be in writing and dated at the beginning of the
or at least dated some years prior to the purchase taking place.
There needs to be a schedule or formula set out in the agreement.
the purchase price of the business is discounted by a certain
for each year of service. The market value of the car wash is
by the seller and the buyer, and then the discount is applied. The
appraisal will determine whether the car wash is bought/sold at a fair
Consult with your attorney and your CPA before setting up such an
9. Cash received from a 10-31 (like kind) exchange.
you have a 10-31 exchange please discuss this with us early to make
that you meet your exchange deadlines.
Personal Guarantees (Personal Endorsements)
Virtually all lenders will require anyone who owns 20% or more of the
personally guarantee the loan. If a minority partner or an
wants to invest in your business but not guarantee the loan
a SBA loan) you should keep that investor's ownership percentage at 19%
Some lenders will even require those that own less than 20% to
guarantee some portion of the loan. This portion may be 200% (two
or 150% of their prorate share (for example: 15% ownership guarantees
But it would be unusual for a lender to require a personal guarantee of
who owns less than 20%. Not needing to guarantee any part of the
is important to many minority (silent) partners.
Ways to Reduce the Cash Down Payment Made
As stated above, 20% is a common down payment, particularly for new car
owners. These are some ways to reduce the out-of-pocket down
made by you personally:
Method 1: You may be able to reduce the 20% down payment by substituting
part of the down payment with additional real estate collateral.
collateral often used to reduce the down payment can be another car
a duplex, rent house, or other marketable real estate . Usually the
will want a 1st lien or a strong 2nd lien in property that substitutes
a portion of the 20%. Still, for a new car wash to be constructed just
all lenders will want you to put down at least 10% in cash. Some
may want those who are buying an existing car wash to also put down at
10% in cash.
We HAVE financed 100% of car wash purchases (including all soft costs)
the additional real estate collateral, perhaps a second car wash, has
marketable value. An example might be a car wash owner who has no debt
a car wash and who wants to buy a second car wash with 100% financing.
lender would take a first lien in the car wash to be purchased and a
lien on the applicant's existing car wash. In these cases a
percentage may be 50%, perhaps as high as 75% or 80%. Usually both car
will need to be appraised.
If you plan to offer additional collateral in lieu of a portion, or
even all, of the down payment the lender will consider the first lien
collateral value to be a portion of the market value. This
usually 80% or 75% of a residential property value or commercial
property value, and 50% of a raw land value. To use the market
instead of the cost you will normally need to have owned the property
for at least about two years. Otherwise the cost amount is used,
instead of the market value. The general rule is: "Cost or
whichever is lower."
Sometimes we can arrange a loan where a second lien is acceptable as
additional collateral. In this instance the formula for
the value that can substitute for down payment is: ((Market
times 80%) minus First Lien Loan Amount). For example, if a rent
has a market value of $150,000 and there is a first lien balance of
$70,000, the collateral value will be (($150,000 times 80%, or
$120,000) minus $70,000), or $50,000. That $50,000 could
for a portion of the cash down payment.
Method 2: When installing an in-bay automatic a way to lower your
payment is to have an investor buy the in-bay automatic equipment.
Charge rent to the investor (in-bay automatic owner) and split the
revenue with that owner.
In your agreement you could include an option to buy the machine after
period of time. If you plan to have an investor buy and own the
automatic please discuss this with
Method 3: Lease the equipment rather than financing the
in the loan. This can reduce your cash out-of-pocket. However, most
on the land and building will object to this, preferring to financing
entire project. Compared to a single overall loan for the entire
equipment leases tend to reduce the car wash cash flow during the
startup period. Car wash equipment leases can be difficult to get
the first-time car wash owner.
Method 4: You may be able to get investors to invest cash
wash project. Their cash investment can help you with the down
or make the entire down payment. Many people who want to get into the
but who have little cash for the down payment, have gone to investor
meetings, called private investors, called investment banking firms,
CPA's, bankers, attorneys, insurance agents, etc.. without finding
We have never seen an investor in a car wash that was not already a
friend or a close family member. We HAVE seen a number of car washes
close family members, close friends, and existing business associates
investors. Your most likely investors are the people closest to you.
With most loan types, an investor who owns less than 20% of the car
may not need to guarantee any of the loan which reduces your investor's
risk. A lender could require those who own less than 20% to
some multiple of their ownership percentage, say 15% x 1.5 =
With most loan types, anyone who owns 20% or more of the business MUST
100% of the loan.
Method 5: Borrow money from relatives or friends where you
to repay the money according to a repayment schedule and using a formal
Note. Discuss this with us early.
Method 6: Receive a cash gift. Some people who plan
buy or build a car wash receive a cash gift from a relative. This
be a part of the gift giver's estate planning. The Congress/IRS
a limit upon the amount of gift that a person can receive without the
If a parent or other person wants to give a larger amount to you than
the maximum gift amount as set by Congress and you wish to avoid the
can do an additional subordinated loan payable to the gift giver.
with your CPA to determine the restrictions concerning gifts.
The lender's only criteria is that the person giving the gift must
in writing that there is no expectation of repayment from the person
Method 7: If you are BUYING a car wash and will be financing your
with a bank or finance company, you might be able to make as low as a
cash down payment if the car wash seller will take a 2nd (second)
subordinated note for 15%, or so, of the purchase price. In these
the bank or finance company makes the loan for about 75% of the total
Method 8: If you are buying you might be able to put down 10% (or
and get the car wash seller to carry a 90% first lien note. You
refinance the "seller note" later with a bank or finance company once
have built equity in the car wash.
Method 9: If you plan to lease a car wash or car washes for a
of time before buying them you can often arrange within the lease
a discount of the eventual purchase price. In these cases the
price is usually set at the outset according to a schedule and the
is also set at the outset according to a calendar schedule.
One way for the discount to be determined at the eventual time of
purchase is by assuming that the lease payments are equivalent to a
loan amortization payment. The discount is the same as the
principal reduction that would have happened over the same time.
In one such schedule the discount
is accumulated and only becomes active after a set period, such as
for the first year before the discount becomes effective for that first
then accumulates again for the second year until the second year
becomes effective, etc.
seeking 100% financing please read this section carefully.)
We have arranged 100%
financing to buy or build new car washes and are
to do so now. This normally involves a lien on a property in
addition to the subject car wash.
A person who is buying or building a new car wash AND who already
owns one or more car washes CAN use the equity in the existing car
wash(es) in lieu of the down payment for the new car wash. Of
course, there would have to be sufficient equity in the car washes
The same can be done if you are building your FIRST car wash and would
like to use your equity in a home or commercial building instead if a
cash down payment.
Some lenders require a minimum of 10% down on new purchases regardless
whether a car wash investor already has sufficient equity in car washes
owned. But, we can usually arrange your loan with a lender that
will not require at least 10% down, if you are giving sufficient
additional collateral in another property.
We cannot do 100% financing when you have no significant collateral to
addition to the subject car wash.
Self-Contracting or Self-Construction
Virtually no lender will allow labor that is personally performed by
car wash investor ("sweat equity") to be counted toward the Total
Cost, nor toward the down payment. If you build the car wash
any supplies that you purchase for the project CAN be counted towards
Total Project Cost. Labor performed by others can also be counted
the Total Project Cost.
If you intend to construct all of the car wash yourself or if you
act as the General Contractor please discuss this with us
early. We may be able to help you to get the lender to
We want to finance your car wash!