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As every month has gone by this year, it has become increasingly difficult to get a carwash financed. In fact, as I write these words, it is difficult to borrow money for anything, no matter how credit-worthy you might be.
Lending cycles change, and this toxic financial environment will pass — but not anytime soon. For that reason I recommend that you consider utilizing the following approach to securing a loan package to build or purchase a carwash.
Don't go to who you know first
In the past to secure a loan you might have put together a pro forma, called up the lenders you already know, and have lunch to discuss what kind of loan you are looking for. I recommend strongly that you don’t do this. Why? The chances are excellent that the loan approval committee at your bank is going to be extremely selective right now.
A loan for a carwash is going to be a much tougher “sell” right now to obtain an approval by your lender. To increase the likelihood of getting a carwash loan approved, you need to arm your contact at the bank with a very different approach to go to their committee with. Here’s how to do it.
A different business plan
You need to not only construct a comprehensive business plan which you may not have had to do in the past, but you must also orient the plan toward the new environment that we find ourselves in. The focus for the bank needs to be all facts.
The questions that the banks need to have answered in the business plan are:
- What do the financial projections for the next three years look like?
- What are the facts that these projections are based on, such as traffic counts, demographic numbers, etc.?
- Do the numbers reflect what’s happening economically right now?
- What is the actual experience of the people who are going to run this business? (If you're new to the industry, do you have an experienced manager or have you lined yourself up for some extensive training?)
For the banker audience, the more facts and the less "story" the better.
Contact specialty loan brokers
There are loan brokers who specialize in making loans for carwashes. These brokers maintain a core roster of lending institutions that they have worked with over the years. Based on the track record of these brokers, a plan for a carwash will get a better reception at these banks.
A recent survey of these brokers has indicated that they are still making loans even in this tough economic environment. A quick check of some of the banks that have been very active in the past has indicated a big withdrawal from their efforts to finance any new carwashes. Specialty loan brokers have become even more important now than ever before.
If you go to these brokers and receive a pre-approval, it normally does not cost anything to do this. Moreover, these brokers will show you how to package your loan request to ensure the highest possible chance for an approval for a carwash.
If you would like to receive a list of potential brokers, please email me at the address listed at the bottom of this article and I would be happy to send you a list (I receive no referral fees from anyone for this information).
Don't rely on one source
It is extremely important to initiate contact with multiple brokers simultaneously. In other words, you want to receive preliminary approval from at least two or three entities. The fact is that no matter what anyone tells you about the credit-worthiness of your loan, there are going to be difficulties down the road in getting this approved. To ensure that your project does not take an extended period, you need to have multiple sources working to ensure that you have at least one source to work with.
At some point you will have to make a decision because these brokers will require a fee for their services, but you do not have to make that decision until you have several sources to choose from.
Approaching known lending sources
Now that you have several pre-approvals in hand, your approach to your existing lending sources might sound something like this: "I am building (buying) a carwash. I have secured approvals from (#) lenders who specialize in this type of loan. Before I made a final commitment, I wanted to see if your rates are competitive. Would you be interested in giving me a quote?"
Compare the above approach to what you might ordinarily consider doing, which often sounds something like this: “I am considering building (buying) a carwash and I wanted to see if you would be interested in financing it.”
Can you see the difference? With the first approach your banker will go to the loan committee with the proof that they should make this loan. What is that proof? The fact that other banks want to make the loan. And, if the bank is out of town, the bankers will want to meet this competitive challenge.
You may think the difference is small, but it is not, and especially in today’s environment, it is much more critical to be in a strong position when you are approaching lending sources.
By the way, when it is all said and done, don't be surprised that your loan broker has secured a loan with better terms than you obtain anywhere else, even from your own hometown banker.
Even in this financial environment, loans for carwashes are achievable if you approach the situation in a different manner. Good hunting!
Steve Gaudreau is a 20-year veteran of the carwash industry and the author of the new book So You Want to Own a Car Wash: Finding and Evaluating Retail Site Locations for Car Washes. He is also a frequent contributor to Professional Carwashing & Detailing. To e-mail Gaudreau, click here.