The main programs to consider when financing a car wash business/operation are: 1) traditional financing 2) SBA (Small Business Association) 504 loan; or a SBA 7(a) loan. Of these programs the most popular is the SBA 7(a) loan. The SBA 7(a) loans offer the most flexible underwriting, and it also allows loan proceeds to be used for a wide range of uses (real estate, working capital, partner buyouts, equipment, etc.)
The owner profile, property quality, investor strength and property location are factors that will determine loan options. Typical bank loans start at 5% with 3-7-year terms, up to 75% LTV. Some non-recourse options are available, depending on qualifications, and loan to value. Bulk financing and portfolio options are available.
Traditional car wash loans can be used for acquisition or refinance.
SBA 7(a) loans are funded by banks, not the Small Business Association. The SBA acts as an insurance company for the lender. When the SBA lender structures a loan, per the requirements of SBA, the SBA guarantees a certain portion of the loan will be repaid. This SBA guarantee, in turn, reduces the lending risk. However, not every SBA lender is going to be the same. Every bank establishes its own credit criteria, loan structure, and eagerness to lend.
Nearly all SBA 7(a) loans are structured for a 25-year schedule. By comparison, most traditional bank loans for car washes require a shorter repayment period to reduce the lender risk. Even a five-year reduction in the amortization schedule can mean a monthly payment increase of 15%-20% to the borrower.
There is no balloon payment whereas traditional bank loans often have a 5 or 7-year balloon payment. At the end of a 5 or 7-year balloon payment loan, the borrower must either: a) pay off the entire balance of the loan, b) apply and be approved for a new loan with the same lender or c) go back in to the marketplace to shop for a new lender.
The prepayment penalty during year one is 5%, year two is 3%, and year three is 1%. After year three, there is no prepayment penalty.
Whatever your loan needs for your car wash are, Integrity Capital is here to help. Call today, and let's discuss: 480-462-6688.
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