Construction financing is coming back strong and new washes are being built throughout the nation. Beautiful, modern facilities with state-of-the-art equipment and designs are being built with typical project costs in the $2 to $3 million range. These newer facilities are often crushing the competition, taking large portions of market share.

But before you go out and buy land, below are some major points you should keep in mind regarding getting your commercial construction loan approved and funded.


Construction financing is the riskiest type of loan there is for a bank. So expect lenders to be more cautious and thorough than typically. Think about it from their perspective:

1. You have an unproven location. Who knows, maybe the area doesn’t really need another wash, maybe the area can’t support the type of wash you want to build, maybe the city and state will be really tough to deal with and cause delays, etc.

2. Virtually every construction project out there (regardless of whether it’s a car wash or any other type of building) goes over budget and takes longer to build then the owner and general contractor expect/claim. So from the bank’s perspective the question is how much will it go over budget, not will it. And can the borrower afford to pay for the cost overruns and timing delays?

A defaulted, partially built wash has little collateral value and is very hard to liquidate for many reasons such as title, liens, and the fact that the loan amount will likely be much high then the as-is value, etc. In short, having a defaulted uncompleted building is a giant mess for a bank (and the borrower) and that is why they want to be cautious.

One of the best loan programs out there for construction financing on car washes is the SBA 7a program. You will get the highest level of financing in the business; your loan will automatically term out into a permanent loan once the construction is complete; and your amortization schedule will be longer then virtually all other loan programs at 25 years — with no balloon. Much of the below points are based on the SBA 7a loan.

Here is what you can expect regarding the requirements with a 7a:
• You will need to come up with at least 15 percent as your equity injection. This can be a combination of cash and equity in land (assuming you already own it).
• As mentioned above, you will need to have some cash left over after your equity injection to be able to pay for any cost overruns, this is referred to as “Post Close Liquidity” — 10 percent in cash of the loan amount is typically required.
• In addition, most banks will roll a 10 percent construction contingency into the loan amount. Meaning they will bump up the loan amount by 10 percent to cover cost overruns. This is on top of the post close liquidity discussed above. Again, the point here is to protect everyone from unforeseen cost overruns.
• You will normally need plans completed before you can close. This means you will have to invest a lot of money in architectural and engineering fees, etc. on the front end before your loan is closed. Banks want you to have completed plans before you close so they know the construction cost estimates are based specifically on what will be built.
• An interest reserve will be built into the loan. Meaning the payments on the loan will be prefunded into the loan so the borrower does not have to make any payments while the wash is being built.
• The lender will want to see at least three years of direct industry experience, as they wantto know that the borrowers really know what they are talking about when they say it is a great location and that they know how to run it properly.
• Underwriters are going to challenge your projections, assumptions, and projected demand for the area. So they will look at traffic count, demographics, competition, your price points, your projections, etc. They will compare all of these to local and national standards/averages.
• Other typical underwriting questions will come up as well, such as your personal credit, whether you have any other income (other businesses, spouse’s salary, rental income, etc.), and your level of personal debt, etc.


One of the biggest areas of confusion and conflict is that banks want to get to know the builder you select. Borrowers are often dumbfounded about this, taking the attitude of “mind your own business.” But, again, if you look at it from the bank’s perspective it might help you understand the request.

The builder will be responsible for estimating the costs of the project. If they are not thorough and/or purposefully underprice the project in order to win it, then you and the bank are in deep trouble, as you will have an underfunded project. Also, the builder will be responsible for handling millions of dollars — paying all of the subcontractors and material costs. If they mishandle this money, it will come back to you and the bank. So here is what you can expect from the bank with regard to reviewing the builder:
• The owners’ personal credit and reputation. Are they bondable?
• Their gross sales and net income trends, cash reserves, etc.
• How many similar projects have they completed in the last few years?
• Are they properly insured and licensed?

In short, the builder will be reviewed and scrutinized. Keep in mind the bank is in essence protecting you from unprofessional builders. So when you are doing your shopping, do not just go with the builder that claims the shortest time frame and lowest costs. Look at their resume, other washes they’ve built, enquire about their reputation, etc. The last thing you want is an underfunded project and thus a defaulted construction loan.

Besides these precautions, now is a great time to build a new wash, and you can get it done with as little as 15 percent down with long-term financing. Many operators are investing in state-of-the-art facilities and are making a ton of money. Best of luck with your project. I hope this helps.

Jeff Rauth has over 15 years experience in the commercial real estate business and focuses on car wash financing. He has worked as a commercial mortgage broker and as a banker. He currently works at a bank that funds car wash loans in all 50 states at up to 90 percent financing, typically on 25-year term and amortization schedules. Call him at (248) 885-8797 or e-mail See his blog at The opinions expressed in this article are entirely his own and do not reflect those of his employer.