Car Wash Financing

The Definitive Guide to the Financing of Car Washes

Key Takeaways

  • There are several different types of car washes that can be categorized by several different terms, including machinery, structure, and washing method.
  • Car washes can be further described by their features, like manual, automatic, in-bay, tunnel, conveyor, friction, touchless, and more. These terms can be mixed and matched to discern between the many different types of car washes.
  • Understanding the different types of car washes, as well as the cost of building a car wash, is critical in successfully making the purchase or sale of a car wash business.
January 12, 2022

Car Wash Financing

The Definitive Guide to the Financing of Car Washes

Growth Financing

Typically for New Carwash Builds and Carwash Acquisitions and Purchases

Car Wash Financing needed to take a car wash business, operation, or company to the next level (or even to the “first level” if this is your first car wash and you are a first time car wash owner looking for financing) is best categorized as “Growth Financing”.

The two main methods of growth in the car wash industry are via building new car washes (aka “New Builds”) or growth through acquisition (acquiring pre-existing locations and car wash operations). For the purposes of simplicity, it is best to think of any financing for revamping a car wash to be acquired as “growth financing” despite the proverbial line between “growth” and “maintenance” financing being most blurred at this intersection.


Maintenance Financing

Typically for Working Capital (carwash chemicals, inventory, etc.) and Carwash Equipment Financing

Many times, external financing in the way of loans or investor funding is required for not growth, but maintenance in the car wash business. Maintenance financing is not the same as, nor should be grouped in with distressed financing and / or what is most likely defined as “rescue financing”. Distressed and rescue financing, though most certainly present in the carwash industry, should be properly reserved for describing situations where financing is immediately needed to prevent bankruptcy.

True maintenance financing is the need of external funding in the near-to-mid-term to either prevent the need to ever need more short-term and immediate financing or to improve the car wash operation at hand. Encompassed within “maintenance financing” is financing for equipment upgrades, signage and branding, short-to-mid-term working capital needs (chemicals, inventory, payroll), and other similar types of uses.


Optimization Financing

AKA Car Wash Refinancing

The last major use of and driving force of needing car wash financing is for optimization purposes. Optimization Financing is when a capital structure is put in place for now other reason than to achieve the cash flow and capital structure related goals of the car wash owner / operator. “Optimization Financing” differs from all other financing needs in that the use of proceeds are not specific. The money or capital being injected and raised through optimization financing is not for buying a specific asset (whether that be another car wash site or new conveyor setup). The use of proceeds takes a backseat to the financial implications of the financing itself.

The two primary reasons why optimization financing is desired and obtained in the car wash industry is not dissimilar to all other industries; to lower debt service expenses through the obtainment of more attractive and favorable financing and loan terms or to allow for the extraction of capital via a recapitalization. Optimization Financing, regardless of which of the goals are being targeted is essentially what is most referred to as “refinancing”.

Now having clearly lines between the different reasons car wash financing may be needed and for what the proceeds are to be used for, it’s time to look at the different types of car wash financing and lending that is available.

Types of Car Wash Financing

The three primary types of financing available for car washes are:


Debt Financing for Car Washes

The most employed financing instrument implemented in the car wash industry is debt financing – or in other words car wash loans.

Debt Financing is best defined as any financing instrument where the borrower (or entity being lent to) is to pay back the money being lent plus some form of interest, regardless of the terms (interest rate, amortization term, etc.…) and the form (PIK, cash, etc.…) in which the interest element is to be paid and is structured as.

Debt financing is the most widely available and most often the easiest to secure, with some caveats depending on the use of proceeds and reason for financing, of all call wash financing options. Debt financing is available for car wash operators and owners for essentially all reasons and uses, with different lenders and structures allowing for the accommodation and fulfillment of all car wash borrower needs. The primary type of car wash loans are Conventional Loans, SBA Loans (Both SBA 7(a) loans and SBA 504 loans) and lastly Unsecured or “Mezzanine” debt financing.

The capital providers that offer debt financing for car wash needs include traditional banks, government backed and quasi-government SBA lenders, unsecured more private type lenders, and even the classically dreaded hard money lenders.


Equity Financing for Car Washes

Equity financing is also readily available for nearly all car wash financing needs, however, is far less standardized and more specific opportunity and situation dependent than debt financing. With equity financing the investors (as opposed to “lenders” in debt financing) provide capital for your car wash funding needs and in return receive what is essentially a portion of the upside potential of the business (but do not receive regular interest and payback payment such as debt investors do).

The discussion of which between equity and debt financing is “cheaper” or more “favorable” or “better” is certainly a topic that far exceeds the car wash industry and which breaches more lofty topic realms for which theses are written. Let it suffice to say that equity is more expensive, and not in the way of cash. By and large, equity financing is always the most expensive financing in the long run. The reason being the same as what is true in all other industries, being that giving up a piece of your wonderfully successful and cash flowing car wash business or empire in ten years’ time is a far larger pill to swallow and ends up inevitably adding up to far more than the summation and financial repercussions of paying 6% interest on a principal balance borrowed from debt. In line with such, debt financing should nearly always be pursued prior to the pursuit to equity financing (with certain situations being exceptions and all the while knowing that roughly a quarter of car wash financing situations will require both an equity financing and debt financing component for which one can not exist nor will be extended without the existence of the other).

The capital providers of equity financing for car washes include private equity funds, family offices, private investors, friends and families, and high-net-worth individual investors. This diversity and the even larger degree of dissimilarity existing between these providers in comparison to the debt financing capital partners is a large and influential reason as to why equity financing is far more opportunity and situation specific than debt financing is. It is this in combination with the unsecured and largely uncollateralized or junior position and claim the equity financier has on the car wash business at hand that makes equity financing far more nuanced and situationally specific.


Off-Balance Sheet Financing for Car Washes

Off-Balance sheet financing is the third and least discussed or recognized type of car wash financing available to owners and operators. Off-Balance Sheet financing is theoretically the use and leveraging of currently on-balance assets to obtain capital without taking any sort of liability onto the company’s primary balance sheet. That sounds awfully complex, as any definition of off-balance sheet financing will sound regardless of industry – however is quite simple. The only notable form of off-balance sheet financing that exists in the carwash industry is through the real estate sale-and-leaseback market and execution.

Sale-and-leaseback transactions are when a car wash owner, who currently owns both the land / real estate and the car wash business itself legally, though not physically of course, separates the two (land from business) and sells the land while retaining ownership of the business and simultaneously leasing the land back from the entity to which the land was sold to. The goal and purpose of sale-and-leaseback transaction, not uncommon in commercial real estate as a whole though having become far more common place in the car wash industry in particular over recent years, has the goal of providing capital to the car wash business owner through separating the land. Why Sale-and-Leaseback transactions should or should not be done is a deeper topic. The short and skinny is that carwash owners and operators who view their main “edge”, value-add, or competitive advantage to be the actual operations and business sides of their car wash, far more so than the commercial real estate side of it (which is often viewed by car wash owners and operators as being largely incidental) are able to pull significant capital out of their currently successful operators, retain ownership of the car wash businesses themselves, and can then use said gained and “pulled” capital for other uses such as new acquisitions, new builds, or to give themselves a large payday for de-risk or just simple and more obvious compensation purposes. There are also cases where more sophisticated capital structures in the car wash space will utilize off-balance sheet financing via sale-and-leaseback transactions in order to effectively lower their effective and weighted cost of capital for their car wash company and business(es). Investing in and buying car wash real estate from the buyer perspective does present certain qualities of attractiveness that have resulted in these transactions more common today.

How to Get Car Wash Financing

Regardless of the reasons you need car wash financing and the optimal type of financing that should be utilized in fulfilling your car wash financing need, there are two primary ways for a car wash owner operator to obtain such:


Research Car Wash Financing and Go Direct

The first option is to research and try to find a financier fitting the mandate and operating structure that will allow for the financing needed. Car Washes, being specialty and niche in all meanings of the phrases and having a very low asset coverage rate that typically and traditionally diminishes exponentially in relation to overall enterprise value of the car wash business at hand, is subject to selectivity. In other words, this method can most certainly work and does work, but not all financiers and lenders will participate in car washes in any way. Those that do participate in car wash financing often have variable and more nuanced underwriting structure and requirements. So be sure to do deep and adequate research when taking this approach.


Using a Car Wash Financing Intermediary

Car wash financing intermediaries, commonly referred to as “loan brokers” do exist. In fact, we at Car Wash Advisory are a loan broker ourselves and are always happy to discuss and arrange financing for any car wash financing needs you may have. Loan brokers and intermediaries are truly a mixed bag. If you do decide to go with a loan broker or financing intermediary, do not skimp on the research and scrutiny you put the broker or intermediary under. Though some exceptions exist depending on the specific car wash financing that is in search of, most car wash financing will take significant time to arrange. Regardless of the active or more passive approach taken by the car wash owner / operator to be the beneficiary of the financing, it’s still a major time investment (even if passively) and therefore it behooves the borrower to make sure they are working with an intermediary they trust and feel confident in (both in the way of car wash lending competency and commitment).


The carwash industry itself may be considered niche and specialized, but the financing options available to car wash owners, operators, and entrants to the space are diverse, wide and accommodating. There is a partner and / or counterparty, whether it be an equity investor or a lender, that is not only willing to provide the capital you are in search for, but is most likely actively seeking to deploy such. The key to obtaining the car wash financing you need or want is to be clear as to your intentions, evaluation the options available and types of car wash financing, and to know where to look. The car wash financing you’re in search of is out there, regardless of the specifics of your car wash goals, situation, and needs.

Frequently Asked Questions

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