Making Every Penny Count

Adding amenities or making upgrades to your car wash can be pricey, and the end-result isn’t always a guaranteed boost to your bottom line. But, sometimes you want to kick yourself for not spending that money sooner, as the end result was fantastic. Here, Paul Hagner, Vice President of Sales at Ascentium Capital, answers questions posed by CAR WASH Magazine about the financial aspect of growth and how car wash owners and operators can use business financing to help meet their business initiatives.

Q. How easy is it to access capital in the current environment and what are a few things that should be considered when choosing a lender?

There are still many lenders to choose from. However, due to the unique business model for the car wash industry, many entrepreneurs may be better served by choosing a commercial lender that understands and specializes in this industry.

The car wash industry is dynamic and experiencing an interesting period of innovation, but it is also facing myriad challenges to keep up with the changing needs of their customers during these unprecedented times — whether it’s revisiting existing equipment needs, acquiring sites, adding safety and sanitizing items due to the COVID-19 pandemic, or other initiatives.

To meet these acquisition needs, there are several financing options including personal equity, traditional bank lines of credit, SBA loans as well as equipment financing solutions. Each should be investigated based on the needs of the individual business.

Choosing a lender that specializes in the car wash market typically means the financier understands the industry, the equipment and the business model. This often equates to the lender offering an application-only finance product which helps streamline the process since financial statements are generally not required up to the application-only limit. The result can be speedier credit decisions, enabling business owners to take advantage of short-term promotional pricing that may be available from manufacturers as well as providing quick access to new equipment and technology.

Q. What type of paperwork can be expected when looking to secure financing?

For lenders that specialize in the car wash market, most of the paperwork should be relatively simple and straightforward, especially if the financed amount is under $250,000.

Many lenders facilitate the entire process online. However, business owners may want to keep in mind some general parameters that lenders may consider when evaluating creditworthiness:

1. Strong credit scores: Ideally 51% of the company’s principals should have good credit scores to receive competitive finance structures

2. Time in business: Typically, the longer a company has been in business, the more likely it is to secure funding.

3. Borrowing history: How a business (or principal) handles debt may be reviewed to verify payment history.

There may be other criteria for creditworthiness, but when choosing a lender there are several other important areas for a car wash owner to consider. Performing some up-front due diligence is always a good approach. Some items to investigate before deciding on a lender include the following:

• A simplified credit process: Is financing a cumbersome process requiring a lot of financial information and paperwork? Businesses may want to look for a lender that has a high application-only threshold. For example, no financials up to $250,000. This may assist in speeding up the credit review process.

• Asset flexibility: Ensure your lender is able to finance a broad array of items including new or used equipment, cloud solutions, commercial vehicles, and other items you may need to acquire for your business.

• Streamlined financial documents: Some lenders may have complicated financial paperwork. Typically, when choosing a lender that specializes in the car wash industry, you’ll receive simplified financing documents. Additionally, the lender may offer a completely digital financing experience to expedite the process.

Q. What types of finance structures are trending?

Deferred payment structures were popular in the early months of the COVID-19 pandemic. As we have seen economic stabilization occur with some businesses, standard structures have returned to the market. Many businesses may still want to avoid large cash outlays by investigating financing options like seasonal payments or fiscal structures.

Also, businesses may want to ask the lender if they offer all-inclusive financing, also known as 100% financing. This may provide the ability to bundle expenses such as tax, shipping, maintenance and other items. These items are sometimes referred to as soft costs. Being able to finance these items can help avoid up-front expenses. Ask the lender if 25%-30%, or even more, can be bundled.

Q. How do the financing options change depending on new builds vs. expanding a current location?

During the COVID-19 pandemic, one area that has been a challenge for some businesses is getting financing for new construction, mostly due to the uncertainty of lockdowns impacting revenues. Alternatively, reload projects, where existing equipment is being replaced, has typically been easier to secure financing. The creditworthiness of the business will still be considered.

When acquiring equipment or technology, shorter-term equipment financing may be structured to match the useful life of the asset. This may also help a company conserve existing lines of credit. Borrowers should also consult with their tax advisor since many businesses may be eligible for tax incentives (IRS tax code Section 179) for qualifying car wash equipment and technology.

Q. Are there financial considerations that are often overlooked by potential borrowers?

Business owners should not overlook securing working capital loans. Typically, these loans can provide cash that can be used for nearly any business need. These small business loans may help cover expenses for consumables used at car washes including cleaning and polishing products, drying towels, detergents and other items. Marketing campaigns, payroll and unexpected business expenses are also key reasons many businesses get a working capital loan.

Q. Are there any other tips you’d like to share with potential borrowers in the car wash industry?

In short, there is no one-size-fits-all approach to financing. Potential borrowers should investigate the options that best meet their business initiatives. However, even if businesses aren’t looking to acquire business assets right now, they may want to request pre-approval for financing to enable them to be prepared for their next acquisition. Pre-approval can provide peace of mind, and right now that can be a big relief for a business.

Ascentium Capital LLC, a subsidiary of Regions Bank, is a commercial lender that specializes in financing for the car wash industry and is a proud member of the International Car Wash Association. Ascentium offers a broad range of business equipment financing, leasing and loans.

¹Financing based on credit parameters. Loans made or arranged pursuant to a California Financing Law license. Contact your tax advisor about potential tax savings.