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Business Operations

Getting the loan

October 11, 2010
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The origination of a carwash loan can be the most complex and misunderstood loan request to a typical commercial lender. It is equally important for the borrower to interview the lender as it is for the lender to underwrite the loan approval.

The purpose of the interview by the borrower is to see if the lender has a high level of expertise in structuring a carwash loan. Leaving the interview process out of the equation can create a real risk to the borrower in the form of additional expenses and headaches.

Locating a lender
A national lender that lends in various states or a local lender that lends within a defined community is suitable for structuring a carwash loan. Overall, experience counts when dealing with any type of lender.

Another option for a borrower is to utilize a commercial brokerage firm which deals with various national and local lenders.

Research viable options
It is very important for a borrower to have their homework completed before interviewing the lender. This type of preparedness will show the lender that you are serious about the carwash.

When discussing details of the project, be sure to define the physical address, so the lender can determine if the location is viable. Define your property as being full service, self-service, exterior express, or in-bay automatic. A borrower needs to list all neighborhoods and apartments within a five-mile radius of the property.

Be sure to include amenities the carwash will offer in discussion with the lender. Amenities include:
  • Vacuums;
  • Detailing services; and
  • Vending machines.
State the names and distances of all traffic generators within a ten-mile radius of your property. Traffic generators are key factors for the lender, so make sure you have this information readily available. Develop a report through the Department of Transportation or a private marketing firm. The last detail is simply stating what makes your location successful which can be expressed through your business plan.

It is important to disclose to the lender competitors within your operating area. Within this report, define each competitor by property type; full-service, self-service, exterior express or IBA. State the age, distance, and overall condition for each competitor. Include details of the competitor, such as a multi-profit offering like a gas station or c-store.

The last requirements the lender will be looking for are:
  • A complete personal financial statement which defines your net worth through your stated assets and liabilities;
  • A defined resumé or management profile that states your education and experience level; and
  • A projected operating report reflecting income and expenses over the course of a three-year period for a startup business.
The lender will also provide you with a loan application that will define your loan request and cost breakdown of your project. All lenders are not the same when requesting documentation and information, so be prepared.

Loan terms
Carwash loans are classified as special purpose loans. Due to this fact, a carwash loan will be considered an SBA loan. The SBA loan proceeds cover land, building, improvements and equipment.

When a borrower enters into an SBA loan program, there are two loans required — which are a bank loan and an SBA loan. Typically the bank loan is 50 percent of the projected cost (including fees and closing cost) while taking a first lien position. The SBA loan is 35 percent for expansion or 30 percent for first owners while taking a second lien position. The borrower will inject the additional 15-20 percent.

The lender’s terms are typically 25 years, while the SBA terms are typically 20 years. The lender’s rate can be set for a specific period of time (5, 7, or 10 years) or the life of the loan. The SBA’s rate is fixed for the life of the loan. Currently, the lender’s rate is based on a ten year treasury swap rate (USA Triple A Bonds) plus 310-340 Bps (rate changes daily). The SBA uses the SBA debenture rate which changes monthly.

The rate the borrower pays is a blended rate, and the blended rate is based on a formula that takes into account the bank’s rate and the SBA’s rate. The majority of the SBA programs will have some type of prepayment clause such as a ten year declining for both loans (decreased one percent each year for ten years). However, 10 percent of the principal can be paid down during the anniversary date.

Always do your homework. Research the market and associate yourself with an experienced lender who has a past history with carwash loans. Discuss your project with other carwash owners and operators in the industry to obtain an insider’s perspective, too. Learn from what others have done before you and take the right step into building and financing the carwash of your dreams.

After a career in commercial lending, Stephen Collins created SJC Financial, LLC, and is now brokering commercial loans nationwide. Collins can be contacted at: 678-325-1114 x5 or via email at: stephen@