So, you’re thinking about buying a car wash, or upgrading/adding new equipment. Maybe refinancing your existing debt for longer terms or perhaps utilizing equity to expand your holdings or even buyout a partner. The SBA loan can be an excellent tool for you to reach these business goals. An SBA loan can offer you lower down payments with longer terms (no balloon payments) and be less intrusive on your business regarding covenants.
However, with SBA loans there are rules of eligibility that apply to every borrower/project. You should keep in mind that the SBA does not lend funds to the borrower, the lender does. SBA will provide a guaranty to the lender (somewhat like insurance) on the loan, subject to the SBA rules.
If you are considering financing for your car wash, let’s look at the questions you should take into consideration.
OBTAINING THE LOAN
How does the lender evaluate the loan request?
Cashflow: Arguably, the first component to measure is cashflow. Just because the business is making a profit doesn’t mean that it can service the proposed debt. It is important to understand what the proposed monthly payment will be and see if the business can support it — with cashflow left for you as the business owner. Additionally, if you or a business partner have “outside income” (non-car wash income), the lender can consider that in the global cashflow so it will be important to discuss this.
What will I need for my down payment?
Typically, on a car wash purchase you should consider 15 percent to 20 percent down. Notice the word “typically.” This is because there can be creative ways to structure the transaction depending on what collateral can be pledged that is owned outside of the purchase transaction. For example, a second on your personal residence or investment property (outside collateral). This is a good talking point with an experienced SBA lender.
Can I use a home equity line of credit for my down payment?
Yes, you can, If you have income not related to the car wash you are purchasing that would be able to support that monthly payment.
What are the loan terms?
Equipment is amortized over a term of 10 years and has no pre-payment penalty; 10 percent down. Real estate loans are amortized over 25 years, and a partner buyout amortization is 10 years. The variables that will come into play during the structuring are 1) What is the collateral (including possible outside collateral); 2) what will you be putting down toward the project and how much liquidity will you have post-closing.
Do I have to be an experienced car wash owner?
Car wash ownership experience is undoubtably a big plus in your loan application. However, it is not always necessary. For example, you may have experience working in a car wash. Maybe even ownership or management in another type of business wherein the experience will be beneficial. This is subjective and again is a necessary conversation with your lender.
What SBA rules do I need to be aware of regarding ownership?
Ownership can take the form of a legal entity such as a corporation or LLC, or even an individual. Keep in mind that any individual with 20 percent or more ownership must personally guaranty the loan.
Do I have to be a U.S. citizen?
No. If you are not a citizen, you would need to be a permanent legal resident.
Do I need a certain credit score?
Typically, a lender will want to see a minimum score of 680. Again, typically. This is at the lender’s discretion, and credit scores can be discussed to make sense of the score. Additionally, you cannot have a default with the IRS or government loan such as student loans.
Can I have more than one SBA loan?
Yes, up to $5 million total.
How long does it take to close an SBA loan?
SBA loans can close within 45 days. However, this depends on many factors. You, as the borrower, need to provide a complete loan package (some items listed below), and third-party reports must be ordered by the lender such as the appraisal and environmental impact, and the reports take time. Also, you, as the borrower, have a lot to do with the closing time, so your preparation will expedite the process.
BE PREPARED FOR THE LENDER
What will I need to provide the lender?
• Personal financial statement
• Three years’ personal tax returns — and business if applicable
• Three years’ tax returns for the business being purchased, year-to-date profit & loss, and balance sheet
• Your management resumé
• Liquidity documentation — bank and brokerage statements
• Be prepared to talk about competition and your projections
Choosing a lender
There are numerous lenders that participate in the SBA program. Some lenders have the designation “Preferred” or “PLP.” These lenders have delegated authority to approve loans internally for SBA.
Some people think obtaining an SBA loan is difficult and can take “forever to close.” This image comes from either an unpleasant experience in the SBA process
or perhaps working with a lender that doesn’t specialize in SBA lending. There is no doubt that SBA loans come with many rules, but working with an experienced
SBA lender that can navigate the process for you can make the difference. You and your lender should be a ‘team.”
Brenda Bevilacqua is a seasoned SBA lender with 25 years of experience with national banks and non-bank lenders. She represents VelocitySBA, a nationwide SBA Preferred Lender (PLP). She can be reached directly at (602) 692-7220 or firstname.lastname@example.org.