Whether you’re just starting, expanding, or looking to upgrade your car wash business, you’ll need significant cash flow.
The good news is that there are many types of loans for car wash business owners, such as:
- Term loans from traditional or alternative lenders
- Small Business Administration SBA 7(a) or SBA 504 loans
- Equipment financing
- Merchant cash advances
- Credit cards
The trouble is matching the right financing option to fit your needs.
For example, car wash acquisitions and startup costs can quickly climb into hundreds of thousands. Therefore, credit cards and merchant cash advances (MCAs) are unlikely to be a fit in those scenarios. However, credit cards and cash advances can be an excellent fit for more minor expenses.
We’ll review the loan programs that car wash owners typically utilize in this post. In addition, we’ll explain how to apply and get approved for car wash financing.
5 Car Wash Financing Options to Consider
Here’s a more detailed summary of the car wash loan and financing options presented above:
1. SBA Loans
Although SBA 7(a) and SBA 504 loans are difficult to qualify for; they can be a viable funding option for your small business. Their advantages include:
- A wide range of allowable use of funds: partnership buyouts, real estate, working capital, equipment, and more.
- High loan-to-value ratios (up to 90 percent for a purchase)
- Long-term (25-year) amortization period
The downside of SBA loans, as you might expect, is the application and approval process. You must meet a long list of criteria to be eligible for these loan programs. Plus, processing times typically last months rather than days or weeks.
However, SBA loans are still easier to qualify for than conventional bank loans. If you aren’t eligible for traditional funding sources, an SBA loan may be worth considering.
2. Term Loans from Alternative Lenders
While all term loans follow a similar structure, they vary significantly depending on the lender. Specifically, a term loan from a traditional lender is more challenging to attain.
- It takes longer to process and requires more paperwork.
- Has more stringent qualification criteria
- Generally, it carries a lower interest rate.
In most cases, a term loan from any lender can be suitable for business owners in the car wash industry. Term loans tend to have large amounts, long repayment periods, and predictable repayment schedules. Also, you can use term loans for expenses such as:
- Working capital
3. Merchant Cash Advances
While not technically a loan, MCAs can be an excellent option for covering short-term expenses.
Once approved for a merchant cash advance, you receive a lump sum of cash. Then, you remit payment for the advance based on your credit or debit card sales, which happens automatically at an agreed-upon percentage.
Since your payment amount fluctuates with your sales, MCAs can offer valuable cash flow flexibility. Also, approval is contingent on your credit card sales rather than your credit history.
4. Car Wash Equipment Financing
Business owners can use equipment financing to invest in car wash equipment such as:
- Pressure washers
- Drying systems
Remember, business owners must use equipment financing for equipment purchases. If you need funding for other car wash expenses, this won’t be the right funding option.
Also, in most cases, equipment financing companies require that you pledge the equipment as collateral. Of course, because equipment financing is secured, it’s generally easier to qualify for this funding option.
5. Credit Cards
Credit cards are quick, easy to qualify for, and can be spent on any expense. However, this financing option can be very costly if you’re not careful. The average maximum annual percentage rate (APR) of business credit cards in 2021 was 22.9 percent.
In addition, credit card fees for late-payments and other services are significant. The best practice for credit cards is to use them for more minor expenses and always pay off your balance as soon as possible. Ideally, you should avoid carrying a credit card balance unless you take advantage of a promotional no-APR period.
How to Qualify for Car Wash Financing
Assuming your credit score is at least 580, you should qualify for a credit card with nothing more than a simple online application. Similarly, some providers of alternative loans offer quick application processes that require minimal documentation.
If you’re pursuing a cash advance, even a bad credit score won’t disqualify you if your credit card sales are high enough.
On the other hand, term loans from traditional lenders and the SBA take more time to qualify for, especially if you’re a new business owner. You’ll need to provide the following documents:
- Credit Report
- Bank Statements
- Tax Returns
- Income Statement
- Balance Sheet
- Budget and Future Cash Flow Projections
Are Car Wash Business Loans Right for You?
No rule says you must obtain car wash financing to be successful. However, access to funding can benefit your business’s future. Financing increases the impact of your business investment through leverage, but it can also accelerate growth.
Rather than waiting to save enough cash to buy a new car bay, for example, you can use financing to do it next month. While financing isn’t free, you can theoretically offset the cost of credit by using it to grow your business faster!
Editor’s Note: This post was updated for accuracy and comprehensiveness in April 2022