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Car Wash Financing: How to Invest in Your Car Wash Business
October 27, 2021
Our Guide to Car Wash Financing

Car Wash Financing: How to Invest in Your Car Wash Business

Whether you’re just starting, expanding, or looking to upgrade your car wash business, you’ll need a significant amount of cash.

The good news is you have many options that can be a good fit depending on your scenario. Car wash owners have financing options such as:

  • Term loans from traditional or alternative lenders
  • Small Business Administration SBA 7(a) or SBA 504 loans
  • Equipment financing
  • Merchant cash advances
  • Credit cards

The trouble is matching the right financing option to fit your needs as a business owner. 

For example, car wash acquisitions and startup costs can quickly climb into the several hundreds of thousands. Therefore, credit cards and merchant cash advances (MCAs) are unlikely to be a fit in those scenarios. However, credit cards and cash advances can be a great fit for smaller expenses that need to be paid quickly. 

In this post, we’ll review the loan programs that car wash owners typically utilize in various situations. We’ll also explain how to apply and get approved for car wash financing.

5 Car Wash Financing Options to Consider

Here’s a more detailed summary of the car wash loan and financing options presented above:

1. SBA Loans

Although SBA 7(a) and SBA 504 loans are difficult to qualify for, they can be a viable funding option for your small business. Their advantages include:

  • A wide range of allowable use of funds including partnership buyouts, real estate, working capital, equipment, and more.
  • High loan-to-value ratios (up to 90 percent for a purchase)
  • Long-term (25-year) amortization period

The downside of SBA loans, as you might expect, is the application and approval process. There’s a long list of criteria you must meet to be eligible for these loan programs. Plus, processing times are generally measured in months rather than days or weeks. 

However, SBA loans are still easier to qualify for than conventional bank loans. If you are unable to qualify for traditional funding sources, an SBA loan may be worth considering.

2. Term Loans from Alternative Lenders

While all term loans follow a similar, general structure, they vary significantly depending on the lender. Specifically, a term loan from a traditional lender versus an alternative lender:

  • Takes longer to process and requires more paperwork.
  • Has more stringent qualification criteria. 
  • Generally, carries a lower interest rate.

All that said, a term loan from any type of lender can be suitable for business owners in the car wash industry. Term loans tend to have large loan amounts, long repayment periods, and predictable repayment schedules. Also, you can use term loans for expenses such as:

  • Equipment
  • Payroll 
  • Renovation
  • Working capital
  • Marketing

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3. Merchant Cash Advances

While not technically a loan, MCAs can be a great option for covering short-term expenses. If you’ve never heard of an MCA, it’s a purchase of your business’s future credit card receivables. 

Once you’ve been approved for a merchant cash advance, you receive a lump sum of cash. Then you remit payment for the advance based on your credit or debit card sales, which happens automatically at an agreed-upon percentage. 

Since your payment amount fluctuates with your sales, MCAs can offer valuable cash flow flexibility. Also, approval is mostly based on your credit card sales rather than your credit history.

4. Car Wash Equipment Financing

Equipment financing is designed to provide financing for car wash equipment such as:

  • Vacuums
  • Pressure washers
  • Drying systems

It’s important to recognize that equipment financing can only be used for equipment. Also, in most cases, equipment financing companies require that you pledge the equipment purchased as collateral. Of course, the fact that equipment financing is secured is also why it’s generally easier to qualify for.

5. Credit Cards

Credit cards are quick, easy to qualify for, and allow you to use your funds however you want. However, this financing option can be very costly if you’re not careful. The average maximum annual percentage rate (APR) of business credit cards in 2021 was 22.9 percent. 

In addition, credit card fees for late payment and other services are significant. The best practice for credit cards is to use them for smaller, daily expenses and always pay off your balance as soon as possible. Ideally, you should avoid carrying a credit card balance, unless you’re taking advantage of a promotional no-APR period.

How to Qualify for Car Wash Financing

Assuming your credit score is at least 580, you should qualify for a credit card with nothing more than a simple online application. Similarly, some alternative lenders can offer quick application processes that require minimal documentation. 

If you’re pursuing a cash advance, even a bad credit score won’t disqualify you if your credit card sales are high enough.

On the other hand, term loans from traditional lenders and the SBA take more time to qualify for. You’ll need to provide the following documents:

  1. Credit Report
  2. Bank Statements
  3. Tax Returns
  4. Income Statement
  5. Balance Sheet
  6. Budget and Future Cash Flow Projections

In addition, traditional lenders are unlikely to loan to any business that doesn’t have a long, excellent credit history and business track record.

Are Car Wash Business Loans Right for You?

There’s no rule that says you must obtain car wash financing to be successful. However, it’s clear that using a loan, credit card, or advance can offer compelling benefits to your business. Not only does financing increase the impact of your business investment through leverage, but it can also accelerate growth. 

Rather than waiting to save enough free cash to buy a new car bay, for example, you can use financing to do it next month. While financing isn’t free, you can theoretically offset the cost of credit by using it to grow your business faster!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].