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CAR WASH INDUSTRY WHITE PAPER: With Comprehensive Review & Case Studies

Feb 1, 2021

What Is The Best Financing Option For Your Car Wash?

Should I choose an SBA or conventional loan? If you only need a short-term loan, you may want to consider Conventional Financing. If you want a long-term 20 to 25-year loan, SBA is an overwhelming choice by most borrowers. Specific examples of why most borrowers select SBA loans:

  • The SBA Guaranty covers a substantial part of any future loss the bank may incur. Without this incentive, banks would not offer such favorable terms. The SBA Guaranty cost is approximately 3.5% of the loan amount. The Guaranty is part of the loan, and the Guaranty is for the entire 25-years.
  • The most popular loan is an SBA 7a created for smaller loans, and the SBA 504 is primarily for larger loans. Most borrowers select 7a because of the numerous attractive features included.
  • SBA Car Wash loans require 20% down if you do not have experience in the industry and 15% down if you have experience. An existing Car Wash operator may qualify for an expansion loan and possibly finance 100% of the car wash they are purchasing or constructing provided they meet specific SBA requirements. For an example of 100% financing, click here.
  • Comparing the terms and conditions for SBA or Conventional loans shows they are typically about the same. Most borrowers prefer SBA because it is a 25-year loan, plus loans are available. In contrast, it can be difficult, if not impossible, to find a conventional loan with reasonable 25-year terms and conditions.

 

Things to consider when requesting an SBA loan

  1. Google search the “SBA Standard Operating Procedures” (SOP), and you can read over 800 pages of rules and regulations. These rules, promulgated over many years, can slow the loan process for an inexperienced lender.
  2. Due to the above, it is wise to work with an experienced SBA lender specializing in your specific industry. A lender specializing in the car wash industry will understand how to select the best SBA loan program to serve your needs. That same lender may not be qualified to secure the best SBA loan for you in an unrelated industry.
  3. There is a myth that SBA loans take much too long, which is true if the lender is inexperienced. It typically takes approximately 30-days longer to secure an SBA loan vs. a conventional loan, but most borrowers consider this inconsequential considering the advantages they receive from SBA loans.

 

Evaluating Your Car Wash

Car Wash Operators and Lenders can analyze an existing wash by relying on proven evaluation tools that include:

  • Analyze the past three years tax returns to establish revenue, expenses, and EBITDA earnings
  • Create a spreadsheet that makes it easy for the lender and borrower to instantly view and understand the past three years Gross revenue, Operating cost, EBITDA earnings, Debt Service, Cash Flow, and the all-important Debt coverage ratio
  • After the above evaluation is determined, the lender will order an appraisal to confirm the above-assigned value. An environmental report is also requested to verify there are no contamination issues.

 

Renovation and Restructure Options

How to convert a wash with poor performance into a top earner:

  1. Car Wash Renovation: is a rapidly growing & profitable market. Six examples (three with videos) describe how a renovation can increase the value of your investment as described in the following link https://sba-capital.com/car-wash-renovations-rapidly-growing-profitable-market.html
  2. Why does an Underperforming wash not qualify for a loan? Many older washes are underperforming because the equipment is inadequate or outdated. Ask your preferred local car wash manufacture Distributor to create a Proforma describing how much the upgrades will cost and how many additional cars you can wash with these improvements. Bankers can now make their lending decision based on these future reliable projections.  SBA-Capital adopts this strategy when the above conditions exist, with consistently favorable results. Click here for a description of why a loan may not be approved.

 

Ground-Up Evaluation Tools

Lenders and car wash operators can rely on the following to help determine the future success of new construction:

Your local Distributor must visit the potential site with the borrower to determine if it is suited for the Car Wash. If the site meets all requirements, the Distributor will order a computerized Proforma as described below.

  • The Distributor’s Proforma includes info from historical and proven car wash data. The Distributor strives to provide a conservative, reliable, and complete Proforma because Lenders and Borrowers use this information to make major financial decisions.
  • The following Site Evaluation is the foundation of the Proforma. Ten different categories are assigned a value to create a cumulative site score

 

Critical Individual Categories Of The Site Evaluation Include:

  1. Area Profile: Determines if the Car Wash is in a shopping, business, residential, industrial areas, or a combination of these areas
  2. Nearest competition: describes how many washes are in your zone. It is also essential to know if the competitors consist of older or new operations. Historically, most of the competition is old
  3. Weekly hours of operation: New washes, with the latest modern and computerized equipment, typically operates with two employees, and they are open 12 to 13 hours a day.
  4. Type of site: Includes items such as is it a corner lot with light, corner lot without light, Inside lot near the signal light, or on an inside lot with no light
  5. Site Accessibility: does the site have easy in & easy out, acceptable in/out with Divided highway, easy in or easy out one way, or challenging to get in and out.
  6. Entrance Stack up area: is ranked according to more than 20 vehicles, 20 – 15 vehicles, 14-10 vehicles, and less than 10.
  7. Number of free vacuum slots: is graded on more than 20 vacuums, 12-20 vacuums, less than 12, coin-operated, or none (free vacuum has become a necessity in the last few years.
  8. The number of pay stations: is graded on do you have three or more, two, one station, or a live person. Computerized pay stations are becoming more critical each day, mainly when they include license plate recognition and connect to your monthly membership program.
  9. Visibility: more than 500 feet in both directions, 400-500 feet in both directions, 300-400 feet in both directions, or less than 300 feet in both directions.
  10. Traffic speed: less than 30 MPH, 30-30 MPH, 40-50 MPH, and more than 50 MPH.

Traffic count, a crucial site evaluation factor, is purposely excluded in the above site analysis. The “site cumulative ranking” must be available to determine how you can maximize your traffic count. For example, a 20K traffic count will have a lower capture rate of cars if the site has a low cumulative ranking. Conversely, the same location will have a higher capture ratio if the site has a high cumulative rank. A typical capture ratio is approximately 1.0% and up, depending on the cumulative site ranking.

 

Site Selection Options For Your New Wash

Existing site: New or ground-up construction may not involve purchasing a new location. Many operators have owned their site for years and opt to demolish the old facilities and construct a new ultra-modern wash. Visit Shiner’s video for an illustration.

Acquire existing Wash:  Purchasing and demolish an old underperforming wash often can be an attractive alternative. Also, securing a permit to demolish an unattractive building and replacing it with a pleasing architectural design is typically well accepted by the city and neighbors. Click here for an illustration of how a closed car wash is now a top-earning Express tunnel.

New location: Locating a new site that meets all your requirements is the preferred choice by most investors. Your local Distributor will be an invaluable resource as you evaluate the location. Car wash brokers can be beneficial.

Long term lease: Leasing land is gaining in popularity, especially in the East and Western part of the U S. Frequently, the land is not available at any price, and you have no option but to lease. Your car wash can be very profitable, assuming you have a properly negotiated lease and a high cumulative site ranking.

 

The Importance Of Your Local Distributor

  1. National car wash equipment manufacturers rely on their Distributors throughout the country to work closely with local car wash operators
  2. If you are purchasing a new site, a Distributor’s rep will meet you on-site and inspect the property. If the site passes the visual test, your representative will create an invaluable computerized Site Evaluation Proforma!
  3. Lenders such as SBA-Capital utilizes the Proforma to create an EBITDA spreadsheet that allows lenders and the borrows to make decisions based on proven formulas with historical data, not on guesswork!
  4. Car Wash Operators, Distributors, and lenders become close business associates because a team effort benefits everyone.

 

How Many Cars Can Your System Efficiently Wash Per Hour?

  1. For each one foot in length of your tunnel, you can typically wash one car per hour. For example, a 150-foot tunnel should wash 150 cars per hour.
  2. There are variations to the above to be considered. If your system is poorly designed and uses inefficient equipment, your count will be less than the above 150 cars per hour. If you create an efficiently designed system plus purchase and install high-quality equipment, you can service over 200 vehicles per hour.
  3. An operator can control the number of cars they wash simply by controlling the speed of the conveyor. The bottom line is, how many CLEAN cars can I wash in one hour.

 

Car Wash Technology

A White Paper for any industry would not be complete without reviewing the latest and popular new technical products available to operators.

  1. Technology: DRB (the Microsoft of car wash technology) has a unique “car in the box” that follows each car as it goes through the tunnel. The software takes a picture of the vehicle as it enters the tunnel and follows it until it exits. For example, If the customer opens their door, the entire conveyor stops. This software allows the operator to know how everything throughout the tunnel is working, allowing them to run the conveyor at a higher speed and remain safe. The technology also prohibits any potential “pile-ups” in the unlikely event something should malfunction.
  2. Lighting: High Tech lightning has become popular, as described in the Launch Car Wash The lightning is fun for the kids and provides an incredible lighting experience at night. After hours, the operator can leave the lights on in a “low hum with colors changing mode,” which becomes a superb marketing tool.
  3. Reducing labor cost: Technology continues to improve, making it possible to provide a better product in less time and, the Car Wash will almost run itself. A Car Wash equipped with all the latest technology and design can operate with one employee. Most operators add a second employee in a support role that devotes most of their time to selling new memberships and assisting current members with any needs they may have.

 

Membership program Advantages

  • Five years ago, very few operators had a membership program
  • Due to advance computerized equipment, including license plate recognition, the membership program has become a standard part of a new wash package.
  • Customers equate it to driving through a toll booth on the interstate; It is quick and easy.
  • Operators enjoy the program because it stabilizes their monthly income, regardless of weather conditions.

 

The following links may be helpful for anyone that would like more info and view actual case studies:

A case study illustrating the Advantage of working with an experienced lender: https://sba-capital.com/asset-rich-and-cash-poor.html

Experience + Commitment = Your Best Financing Program: http://xpkiu.mjt.lu/nl2/xpkiu/0s4z.html?hl=en

Nine car wash videos describing how to select the best loan for your needs: https://sba-capital.com/2020-southwest-car-wash-expo-lenders-round-table-discussion.html

Six actual car wash renovations you can incorporate: https://sba-capital.com/car-wash-renovations-rapidly-growing-profitable-market.html

SBA-Capital provides a game-changing $7M restructure with $1.5M cash out: https://sba-capital.com/asset-rich-and-cash-poor.html

Five popular car wash loan categories – AutoLaundry Editorial by Hershel: https://sba-capital.com/five-popular-car-wash-loan-categories.html

Closed Wash now a top-earning Express Tunnel: https://sba-capital.com/closed-car-wash-now-a-top-earning-express-tunnel.html

Construct a car wash with an SBA Loan https://sba-capital.com/tip-sheet-construct-a-car-wash-with-an-sba-7a-loan.html

Eco-Friendly Car Wash recycles 100% of captured water: https://sba-capital.com/eco-friendly-car-wash-recycles-100-of-captured-water.html

What you should know to purchase and close an existing car wash: http://xpkiu.mjt.lu/nl2/xpkiu/x84w.html?hl=en

Evaluate & Maximize your car wash value: http://xpkiu.mjt.lu/nl2/xpkiu/ozq.html?hl=en