A lender's perspective: the glass is half empty - Professional Carwashing & Detailing

A lender’s perspective: the glass is half empty

Lenders may be pessimistic, but being prepared can fill the glass in your favor.

If  you ask most business owners what their greatest need is, they’ll say “money.” The truth is, it’s hard to build, grow, maintain or expand a business without it. Sooner or later, most carwash operators are going to need a loan. Whether it’s to buy equipment, build a new location or finance expansion, at some point, operators will more than likely need the assistance of a lender.

Equipment financing is fairly simple. Experienced operators can finance up to $400,000 with just a single-page credit application and some bank statements. The challenge in carwash financing is getting approved for larger loans for real estate, acquisitions, new construction, start-ups or projection-based requests.

Give them what they want

For many people, applying for one of these full disclosure business loans is like going to a foreign country where everyone is speaking a language that you don’t understand. The challenge is trying to decipher what is being said and to figure out how to properly respond.

The key to decoding your lender is understanding his or her needs — the most basic of those being self-preservation, I should think. Lenders want to keep their jobs. Recognizing this can be a helpful tool in your efforts to getting what you want: the money you need to help build and grow your carwash business.

Bankers tend to look at lending from a totally different perspective. To bankers, the glass is half empty. They are more interested in what’s going to go wrong versus what’s right about a loan request. It’s the mentality of, “How am I going to get out of this when the deal goes bad?” That is why many borrowers end up with loans at 50 percent of project cost or loans that require excessive collateral. Again, this is caused by self-preservation. They know the bank can sell the asset at 50¢ on the dollar.

Contrary to common sense, writing bad loans isn’t what gets a banker fired. It’s failing to document why that banker made the loan in the first place. So, if you can help your lender overcome concerns, your lender can help you. The following includes some of the concerns lenders have when it comes to carwash lending.

Lender concerns

No cashflow 

Startup is a “four-lettered word” in lending. Most lenders are not interested in financing new ventures. The primary reason is because of failures. According to the U.S. Bureau of Labor Statistics, approximately 50 percent of all new small businesses fail within the first five years.1 Unfortunately, this stigma flows over into carwashing. 

What most bankers don’t know is that carwashes are much more secure than general small businesses. According to the Small Business Administration (SBA), in a 10-year stretch from 2000 to 2010, SBA loans made to general small business incurred losses at a rate of double that of loans made to carwashes.2 That’s right. According to the SBA data, not only do carwashes perform better than general small business, but carwashes also perform over four times better than franchises.

Don’t be afraid to ask your banker to check the stats on carwashing. I think they’ll be impressed.

No experience

This falls in line with startup lending. Industry experience is very helpful when applying for a loan. In fact, some lenders will tell you experience is required. Not true. Industry experience is not required to get a business loan. 

The SBA is here to help build and support the economy. One way they do that is by providing loan guarantees to small business loans to both new and existing carwash operators. The SBA-guaranteed loans are available to help bankers get past your lack of experience. For example, an SBA 7(a) loan comes with a 75 percent guaranty. If a business fails, the lender is assured of getting at least 75 percent of the principal from the SBA. 

If you are new to the carwash industry or if you have a project that is based primarily off projections, you may want to consider looking for a loan that can help your banker and you sleep at night. An SBA-backed loan may be the answer.

Cash business 

Historically, carwashes fall into the category of being a cash business. The truth is, most banks dislike cash businesses. It probably comes from the fear that all revenue in a cash business may not be reported.

The good news is the cash business model is changing in carwashing. With the advent of the express exterior carwash and the monthly pass programs, many washes are finding a greater percentage of credit purchases versus the traditional cash purchase. In fact, I recently spoke with an industry leader in entry systems and credit card processing. I was told that, in some cases, credit card sales account for as much as 80 percent of the revenue.

Don’t be afraid to tell your banker about the reduced cash-handling needs of your business. 

Special purpose 

Carwashes are an example of a special purpose property. A special purpose property is a property that has limited uses. Bankers fear that, in the event of a forced sale, they will have a limited resale market. 

It’s true that carwashes and carwash equipment are special purpose. It’s also true that carwashes are in high demand. They are selling for some of the highest valuations in history. 

Communicating the high resale values of carwashes may help your banker get over the fact that it is a special purpose property.

Bad memories 

Do you recall that old, broken-down wash on the other side of town? So does your banker. The good news is that carwashes have made a change for the better. In general, the generation of new washes have become highly maintained, automated marvels. 

One way to help remove those bad memories of dilapidated carwashes is by using pictures, sketches and drawings of similar washes. If your lender can visualize your project, you have a greater chance of approval.

Getting approved

Financial institutions want to make small-business loans. But, it’s your job to document why you are a deserving borrower. There are some very important variables in play when lenders evaluate your creditworthiness. Below are some tips to increase your chances of securing a loan.

Know your credit

Since most lenders will look closely at your credit history prior to making a decision, keep an eye on your credit score and anything in your credit report that might be a red flag. It’s a good idea to check out your credit report first to find out what your potential lender will see when they look at it. 

Federal law requires each of the three nationwide consumer credit reporting companies — Equifax, Experian and TransUnion — to give you a free credit report every 12 months if you ask for it. You can obtain a complimentary copy of your credit report by going to www.annualcreditreport.com.

After you get a copy of your credit report, review it for any derogatory marks. Be prepared to address any past credit issues with your lender. Knowledge is power. If you know what’s in your report, you can be prepared to address it. A simple explanation can go a long way in overcoming obstacles to approval.

Do you have a low FICO score? What many people don’t know is that credit usage accounts for a significant percent of your personal credit score. In fact, 30 percent of your credit score is based on usage. One tip to increasing your credit score is to pay down revolving debt. You can increase your credit score by 50 points or more by simply paying down your credit card debt.

Find a business lender that fits your situation

Seek out lenders that specialize in carwash lending. Ask questions about the lender’s experience in lending to carwashes. If you’re a startup business, look for a lender that works with startup loans to carwashes. 

Do not shotgun your credit request to multiple lenders. Be very selective. Every time you apply to a lender, they pull your credit report. When your credit report gets a lot of inquiries, your credit score lowers, making it more unlikely that you will get a loan. In addition, some lenders automatically decline loans that have excessive credit pulls from business lenders over a short period of time. It’s critical for both new and experienced operators to find a lender that is comfortable lending to carwashes.

The business plan

One of the items needed for new carwash projects and projection-based loan requests is a business plan. It’s important to understand that a business plan is used to help a lender document the reasonableness of a loan decision. While it includes many of the items that an owner would use in the operation of the wash, it’s that individual underwriter’s backup in the event of a default. It proves he or she made a reasonable decision based on solid assumptions.

The business plan should address all of the basic fundamentals of your project. Below are some questions that should be answered in your business plan:

  • Describe your business model and benefits. Full, flex, express, in-bay, self-serve, etc.
  • Detail the dollar amount of the request and your injection. List complete project costs and how much you are willing to put into your business.
  • Detail the characteristics of the location. Include area demographics, site traffic count and surrounding traffic drivers (major retailers).
  • Identify the competition. List competitor pricing, types of washes in the area, competition location in relation to your site and your competitive advantage.
  • Outline management and staffing. List your past experience, the number of employees, hours of operation as well as training programs.
  • Provide reasonable assumptions. Document all assumptions with hard data.

Build your business credit

For existing business owners, lenders will also look at your business credit profile. Start building your business credit history by obtaining a D-U-N-S number from Dun & Bradstreet (D&B). You can get it for free by registering at the company’s website: www.dnb.com. 

Your creditors should report your payment history to Dun & Bradstreet. If not, list them as trade references. Dun & Bradstreet will then follow up and collect payment information. Your business credit report will also contain information about past business credit issues. You can boost your business credit score by paying off any outstanding derogatory credit.

Again, experienced carwash operators can get equipment financed up to $400,000 with a single-page credit application. One of the things looked at in app-only equipment financing is your business credit. If you don’t have a D&B number, it may be beneficial to get one.

Collect required information

Lenders want a complete picture of your business, so they will require plenty of paperwork. Gather this ahead of time so that the application process goes smoothly. Provide the following: 

  • Business and personal tax returns for the past three years. Complete federal tax returns.
  • Three months of business bank statements.
  • Year-to-date business income statement and balance sheet.
  • Personal financial statement.
  • Resumes for each owner and member of management.
  • Equipment and construction quotes.

Be responsive

Respond quickly and accurately to questions from the underwriter. Remember that you are dealing with a real person. The faster you respond, the quicker the process will take. You want that underwriter to be on your side when he or she goes to the credit committee. Responding quickly and professionally can only increase the probability of loan approval.

The glass is half full

In conclusion, your chances of getting a business loan will be greatly improved if you understand your lender’s needs. Recognize that lenders are human. You can expedite the approval process if you do a good job up front by understanding and addressing all of the potential concerns. In the end, you control whether the glass is half full or half empty.

Michael Ford is the managing director at Coast Commercial Credit. 


1U.S. Bureau of Labor Statistics, Entrepreneurship and the US Economy Report, 04/28/16.

2U.S. Small Business Administration 7(a) and 504 Combined Loan Performance Report by NAICS Cods from 10/01/00 thru 09/30/10.

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