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Recapitalization: how to leverage your existing portfolio

Is this financing option right for you?


You have put in all the hard work of getting a loan, building a facility and bringing in new customers over the years to turn your carwash into something of tangible value, and now you need to find out what to do next. If you want to improve your business, the next step you should think about is recapitalizing your portfolio and using that extra money to grow your carwash.

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Recapitalization is the restructuring of a company’s debt and equity mixture in order to make its capital structure more stable. Recapitalization usually involves exchanging one type of financing for another.

Recapitalization is not the ideal solution for every carwash owner, but it can be a valuable tool for successful business owners who would like to restructure where they would like their money to go.

Here are a few reasons why carwash owners should consider recapitalizing.

Change your financial obligations

Most people don’t have enough money on hand to start their own carwash, so they take out a loan to start their businesses. However, if you were a new or inexperienced business owner, you probably had to take out a full recourse loan, meaning that the lender can go after additional assets that are unrelated to your wash.

These types of loans help mitigate the risk a lender could face when dealing with a new borrower who may not be able to run a successful carwash. However, once you have increased the value of your carwash and shown your lenders that you know how to run a business, you can potentially restructure your loan.


Related: A lender’s perspective: the glass is half empty

Talk with your lender and try to negotiate your recourse to partial, or non-recourse. Have your financial records ready when you negotiate, and show them how you have increased your carwash’s value and how you have stabilized the business. You probably will not be able to get a non-recourse loan, but there is a chance you can lower your recourse by 20 to 25 percent.

Pay back investors

When you started your carwash, maybe you had a partner or partners to help you finance the new business. Recapitalizing can help you pay back some — or all — of the money you owe investors, giving you a larger stake in the business.

Acquire a new facility

One of the main reasons for a business owner to recapitalize is because he or she would like to expand the reach of the business. You can pull out more of your equity to buy land, build a new carwash or buy an existing one. Recapitalizing will give you the cash flow you need to buy the new property, which is why many people go with this strategy when looking to grow their businesses.


Redeploy capital

You don’t need to buy a new location to grow your business. Sometimes you just need to upgrade the carwash you already have. Recapitalization is an excellent way to increase your cash flow and invest in better technology for your business. Recapitalization can help a carwash owner buy new equipment or hire new employees, for instance.

Lenders and investors are more likely to allow you to recapitalize if they know you are using the money to invest it right back into the business.

Cash out

Maybe you just want to take some chips off the table. Recapitalization can help you to get your money out of the business for legitimate personal or business reasons. 

If your carwash is less than five years old, I would not recommend taking out all of your equity, since that could become a cause for concern for your lenders. A good rule of thumb is to always keep 10 to 15 percent of your own cash equity into the project. Lenders will have more faith in your decision-making if they know that your money is invested in this project too.


In conclusion

If you are looking to recapitalize, then you need to be sure you are prepared before going to speak to your lender.

The first thing you need to do is have a very clear, historical cost breakdown. You want to show your lender/broker when you bought your carwash, how much you bought it for and how much you have invested in the business right now. The lender will want to know what your total cost in the project is so far.

You should have a clean set of books and detailed profit and loss statements for at least two years. Furthermore, you probably want to have a few years’ worth of tax returns.

You will also want to know why you are recapitalizing, because that will be one of the first things a lender will ask you.

If you don’t know why you are recapitalizing, then you are not going to get very far.

You should also have a specific dollar amount when you discuss recapitalization. When I talk to my clients, I always tell them to speak about what they want in detail.

Being specific is terrific and being vague is the plague.

Dave Kotter is the principal of Integrity Capital LLC., a commercial mortgage brokerage in Scottsdale, Arizona. Integrity Capital has obtained carwash financing for dozens of clients across the nation and is an expert in the industry.

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