We have a full series coming out soon on the broader topic of car wash financing which will be far more detailed and comprehensive. That series will consist of pieces covering (1) The basics of the different financing options available (2) The state of financing in this industry from both an individual and institutional perspective (3) The role brokers in the arrangement of financing.
However, due to an alarming quantity of inquiries and messages we have been receiving surrounding financing availability now (during COVID), we felt it important to put something out immediately. This short and informal piece here covers this topic for those that are looking for information on financing of car washes right away, especially in terms of how the current funding and financing environment currently stands with the presence of COVID.
Please note that if you are an institutional buyer, such as a family office or private equity group, you will have to wait for our full series to be published. This piece here focuses on the availability of financing and the financing landscape from an individual perspective. That said, all the below does largely and roughly translate to what we are currently seeing in the institutional / larger deal car wash financing market (with a few differences which will be covered in our full Financing of Car Wash Series coming out soon).
Let us preface the below by stating that we deal with well over 60 financial lending institutions, all around the country, on a regular basis in relation to the financing of car washes. The capacity in which we interact with these institutions spans the financing world, encompassing everything from acquisition financing, to refinancings, to conventional loans, to SBA government backed loans. The actual lenders themselves also run the gamut including that of traditional banks, mezzanine debt providers, government backed-lenders, and equity investors. This piece is specifically focused on the impact COVID is having on car wash lending and borrowing. If you have general non-virus specific car wash loan questions needing answers, we have a car wash loan FAQ available to be viewed anytime.
By and large, the impact which COVID is having on small business lending institutions is more binary than people may initially think.
Although it may make sense to simply make the blanket assumption that what is happening is that all banks are just making it “harder” to get approved for a loan, this is far from what is happening. It’s not so much that underwriting criteria (and therefore approval criteria) is simply becoming more stringent.
What we are seeing is that lending institutions are taking a largely binary response in either lending or not (period). It seems that their decision for such is most largely dependent on their current pre-existing and outstanding loan portfolios and corporate governance decisions.
You have a greater chance of going to a bank and getting a “Yes” or “No” period, than you do going to a bank and getting a “well, we would have before COVID, but now, we won’t”. Large and small institutions alike are either shutting off new loans, or they are not. This all-or-nothing impact we are seeing from COVID is infinitely more impactful and widespread than that of the tightening of underwriting criteria (ie – not doing a deal now that a bank would have done before COVID because now the bank only wants more creditworthy deals).
As anyone who has been in this industry, or has even seriously contemplated entering the car wash industry will tell you, car wash lending (long before COVID hit) was already a very specialized and niche market. Definitionally, car washes are a “Specialty Use” property type. This immediately eliminated ~50% of lenders from being in the market to finance car washes.
Then, you add onto this that car washes are of the most operator discretionary of all “Specialty Use” property types (depending on the car wash type of course – ie – self serves and In-Bay Automatics being less so than Full Service Tunnels for example). Well this goes ahead and knocks out another ~10% of lenders.
And then, you factor in that car wash equipment residual value given the shallow secondary market and the esoteric valuation methodologies which said markets warrant, and you can knock out another ~10% of the lending market.
And here we are, left with ~30% of standard lending institutions being those that are willing to lend on (or for) car washes.
And then… COVID hit….
And now half of the remaining population goes to binary “we are not lending - period” status. And that is where we are today.
Most importantly – contrary to what you may be ready to conclude – financing for car washes is available. All that COVID has done is made navigating the financing market slightly more difficult and emphasized the specialized lender relationships and knowledge base required to receive attractive and appropriate financing. For what it’s worth, this is a better resulting landscape than had it been the uniform tightening of credit underwriting (as opposed to the more binary response we have seen). It is better because although more difficult to find financing for car washes, financing is available to more worthy car wash related borrowers under the current conditions than it would have been available to had the other approach by banks and lending institutions been taken.
By and large, if you are struggling to find financing – Know that there are options available. Financing has not become impossible for car washes. You simply need to know where to look.
If you like this quick, to the point, and less professional type “shorty” format that we are taking here in our Learning Center – please feel free to let us know. We will have social share options on all our Learning Center segments rolling out soon, but for the time being, feel free to shoot us a note through our contact us form.
Be sure to see our Definitive Guide to Carwash Financing for a more comprehensive view of carwash financing and the different options available regardless of the macroeconomic state of the world and country.