Get that loan!
Editor's note: This article is from the October 2010 issue of Professional Carwashing & Detailing which is now available online. If you have a topic idea or would like to contribute an article to the Technical Tip section, please e-mail Editor Kate Carr.
Multi-profit centers are not uncommon in the carwashing industry. However, between today’s economy and irresolute sales projections, obtaining a loan to open up an additional profit center can be tricky.
Before even thinking about adding on any kind of extra business at your carwash or detail shop, it’s important to find out everything you will need to know in order to find the proper lender, secure funding, and make sure you’re not falling into a debt-ridden situation.
Do your homework
Your first step is to plan ahead and do your homework. You would be surprised at how many people apply for credit and have no idea about the total cost of the project; how long it will take to complete; or how much money they will expect to earn from their proposed venture. Be prepared to know everything about your project, not only for the lender, but for yourself as well.
Potential investors should take the time to speak with other operators that have made similar additions to their business. Ask about revenue and expense numbers, find out about any unexpected costs, potential pitfalls of the project, and the timeline it took to complete the project.
This would be a good topic to discuss at a tradeshow or on message boards so that you don’t have to turn to your local competition for information or advice. It’s also probably best that they don’t know about your plans.
Current financial situation
Next, after investors have identified the project costs, you should assess your current financial position. Be sure to ask yourself the following questions:
1. Do we have sufficient cash reserves to support our existing business and personal needs?
2. Do we have additional funds set aside to cover the cash needs of the new venture during the ramp up period?
3. Do we have money to put down towards the project?
Also, you should be prepared to provide full financial disclosure to the lender. Gather your tax returns, bank statements and financial statements to give to the lender (see sidebar). Additionally, you will need to create a brief description of the proposed project, a summary of the project costs, copies of equipment and construction proposals, and income projections for the proposed project.
What lenders look for The primary items that your lender will consider are as follows:
- The existing and proposed business cash flow;
- The owners’ business experience and time spent in business;
- The financial stability of the business;
- How much capital is available to inject towards the project;
- How much capital the business has in cash reserves;
- What the competition in the area is like;
- The personal and business credit history; and
- The overall viability of the project.
How today’s economy plays a role
Business loans are available for qualified candidates in today’s economy. However, the current economic climate is affecting business lending in a number of ways. Most lenders are now requiring full financial disclosure on virtually all projects. The days of underreporting income and being approved for a loan solely based on your FICO score are long gone. Business owners need to demonstrate the ability to repay the debt.
Wonderful opportunities exist in today’s economy in the area of government-backed loans. Federal stimulus programs, longer loan terms and interest rates at historic lows are making government backed financing very attractive. Today, loans backed by the Small Business Administration (SBA) and the United States Department of Agriculture (USDA) the leading sources of business lending in the current economy.
Knowing when the time is right
Opportunities for additional profit centers can be found in just about any business climate. In most areas around the country, the cost to acquire land has significantly dropped and the cost of construction is also down. Operators looking to buy existing entities/profit centers find that they can be purchased for a fraction of what they sold for just a couple of years ago. For the right business operator, now can be the ideal time to invest in the future.
Applicants can control the amount of stress involved in the loan process. The most successful applicants are always prepared, cooperative, timely, and prompt. They will have a thorough knowledge of the project; they will send in all of the required information; and they will respond to all questions in a timely fashion.
In addition, it is important for you to target the right audience when applying for a loan. Many lenders are not lending to special purpose properties (such as carwashes or detail shops) or entertaining new construction projects at this time. Operators need to look for lenders that are currently active in the carwashing industry. Applying to financial institutions that are currently lending to carwash operators should make the loan process quite a bit easier.
Michael Ford is with Coast Commercial Credit, LLC, a company that specializes in carwash, franchise and small business loans. For more information on Coast Commercial Credit, visit www.coastcc.com/index.html.