Start-up Capital?

[jerm]

Hey everyone...I don't post much on this site but I read/research on here at least once a day.

I have been working at or managing at carwashes for about 8 years now and I am ready to buy my own. I understand what is involved in the day to day operations in this business and have become pretty handy as far as maintenance and repairs on equipment. My problem comes in the form of finances. I own a house, own my car, stay on top of my personal bills, but don't have much in savings.

So my question to you guys is, what options are there to someone like myself, who has a college education and 8 years of experience in the industry, but doesn't have the savings to come up with a down payment to a bank?

I've heard that there is a lot more capital available to female business owners. Have any of you heard of or experienced this? Would putting a wash in my wife's name make things a little easier to get financing?

I have also heard that there are loan programs for people who are buying a business which they are currently employed at and that the down payment requirement is less. Anyone ever heard of this?

Any input/advice that you guys have on financing a first wash would be greatly appreciated. Thanks everyone!

 

[newbie]

When you say that you own your house and own your car do you mean that you actually own them outright? If so, then you should be able to use them as collateral to get a loan to make a downpayment.

 

[jerm]

I do own my car outright, but not my house. I guess I meant I purchased my house rather than renting an apartment or something.

 

[SteveJ]

Some options are:
1. Buy from someone who will finance the down payment
2. Borrow down payment from family
3. Borrow against collateral you own.
4. Find a partner with money

Unfortunately, there is not an easy way to get into this business without having something you can offer the bank to show that you are willing to risk some money with them. Banks are tightening down on their lending requirements which makes it even harder. My advice is to talk with some of the local distributors and ask about washes for sale. Every owner's financial situation is different and some of them may take a risk with someone like you who has experience. If that doesn't work, start saving your money.

 

[Rudy]

16 years ago, when I was looking for a loan to start my wash...I was laughed out of the office at 9 out of 12 banks. 2 of the remaining 3 wanted to tie me up so tight, that I'd never breathe. By the Grace of God, there was 1 bank willing to write a loan with 30% down and a personal guarantee. At the closing, he made it known that it was my salary at my day job that made the difference....

FWIW, within one year, I got phone calls from about 1/2 of the banks that had turned me down. "Let us know if you ever need to borrow more money".

Jerks.......

 

[jprb]

If you are able to do any of the construction work yourself, you can have equity when the wash is built, which could make up the down payment.

JPRB

 

[wagsnwheels]

You can go to www.sba.gov and learn about how the SBA backs loans. You still have to come up with 25% down. In my aread they have an economic development corporation that loans money on land and equipment only. They will guarantee a 90% loan if you have experience. In the end, it is extremely tough to start any business without some CASH. So start saving, start gambling, find a rich uncle or something. Once you do, think twice about trying to start a business in an economic downturn. And remember, very few people will sell you a carwash if it is making a ton of money.

 

[robert roman]

1) Forget about partners. I have plenty of horror stories to support my opinion.

2) If your only concern is getting a cash flow, leasing an existing wash may be the way to go. If you want to build wealth, buy a wash that includes the land.

3) If you need to raise capital for the down-stroke, get money from friends and relatives and subordinate them as silent partners who have no say in the operation of the business or access to the cash.

4) Before you approach any bank to inquire about funds, develop a strong business plan that highlights your industry experience and achievements.

Hope this helps.

Bob Roman

 

[Waxman]

Ditto to what Robert Roman said. His sentiments are right on!

I had a partner and it made me miserable; the partnership aspect nearly killed the business. Partnership ended, business recovered and grew. Not 'dissing' my ex-partner, just stating facts is all, trying to steer you away from this.

Borrow from family and friends but put it in writing!

There's no way around a big chunk downpayment. Business involves risk and banks want you to give something to get something.

Imagine if business ups w/no money down were common; there would be alot more failures.

You have to pay some dues to have your own wash as well as pony up a chunk of the capital. That's as it should be, IMO>

 

[jerm]

Thanks for all the replies. I am definately going to buy an existing wash, so maybe I could find an owner willing to hold some of the note.

As far as the down payment goes, I kinda figured there wasn't a way around it. I'll have to talk to some family to see what kind of help I can get.

When borrowing from friends and family, have you guys found it easier to just pay them back each month like you would a bank (set term and interest rate)? Or have you given them a percentage of ownership or profits?

Also, if I borrow the down payment from family/friends, what would the bank lender think? Should I make them aware that I am going to have to pay them back too? Or just let them think it is a gift? Does it even matter?

Thanks again.

 

[pitzerwm]

The bank wants you to have the skin in the game. You should pay your investors back each month, but if you are 100% financed, you probably are not going to make any money, unless its been run down and you have a lot of growth available.

 

[MEP001]

It's going to be a lot of money to borrow from family/friends. 30% down on a wash worth $300,000 is nearly $100,000 to come up with, and like Bill said if you're paying interest to the bank and to your family you'll have no money left for yourself or improvements. You might be better off leasing with the option to buy at the end of each lease renewal, then you can see what the wash really does, you can operate at a profit and save for a downpayment, you can make a few improvements and build the business up before buying if it's currently an underperformer.

 

[jerm]

Thanks again for the replies.

Could you explain how a lease would work in more detail? A guy I know who is considering selling his wash was talking about this as an option and I don't fully understand whats involved

 

[MEP001]

Pretty simple, you pay him some money every month and you have full control of the property. The hardest part is working out a lease amount where you can make money - I've tried a few times to work out a lease with someone and they've always tried to get as much from me as they were making running it themselves, which would have left me working for free.

 

[Washmee]

If you want to move to the midwest here is an opportunity for you. Only $35k needed.

http://www.ohio.com/news/ap?articleID=633839&c=y

P&G says potential car wash franchisees will need to pay a $35,000 fee and meet other requirements.

 

[jerm]

Pretty simple, you pay him some money every month and you have full control of the property. The hardest part is working out a lease amount where you can make money - I've tried a few times to work out a lease with someone and they've always tried to get as much from me as they were making running it themselves, which would have left me working for free.

So I guess that is similar to renting/leasing a store front.

Obviously it would depend on the lease agreement, but is there usually any opportunity to purchase the wash at a lower price in the end? How long are leases usually? Is this common in the car wash biz? Is there usually a down payment involved?

Sorry for all the questions, but I figured I would take advantage of the knowledge and experiance on this site and pick all your brains! thanks.

 

[Patrick H. Crowe]

Dear Jerm:

1. Please ignore sweeping generalizations. Example: "Partnerships . . . I have horror stories". - - that's not evidence, it clear prejudice. This is complete foolishness.. In my 40+ years I was involved in many partnerships. Most worked well, some did not. In my technical bulletin on business formats I tell reader what to do to be sure parterships woork well. One simple example: have a writen buy ou agreement in case things go bad.

2. Beware of borrowing from family. I never did that because my opinion was that they would not be able to lend at a level of comfort which would be satisfactoty to both borrower and lender. Of course I'llgrent that famlies of seven figure net worth can no doubt lend a hundred grand and not worry about the loss. That's atypical. So, once again beware of those kinds of generalizations.

My first wash was a partership. Each man had 1,000 dollars and we wewnt on leased land. It worked well. Keep trying; ignore much of the crackpot advice.

Patrick H. Crowe

 

[Waxman]

Pat

I disagree that the advice about partnerships is 'crackpot'. Maybe lacking explanation is all.

My partnership did not include ANYTHING in writing and that was an error on my part. Get all terms in writing for partnerships or any other business deal over $1000.

However, even if parties spell out specific duties as well as buyout agreements, partnerships can get dicey once things change for either partner, and change they do! People get into financial trouble, go crazy, get divorced, get into hard drugs, etc, thus changing things greatly within the context of 'being partners'.

The advice I gave on partnerships was based on my own experience. Although that may be less experience than you have (kudos), my advice was intended to protect the post's author from the pain I went through and therefore was not 'crackpot'.

 

[Patrick H. Crowe]

Dear Waxman:

The email you sent me made it seem you thought my posting was aimed at you. I assumed my reference to "horror stories" would make clear who I was addressing. As you must know many partnerships fail and many don't.

In my bulletin on vatious forms businesses I make clear how to design written partnership agreements to minimize (N. B., not eliminate) the possibility of failure.

You and the other poster base the sweeping generalizations on one experience and "horror stories".

One of my first partners was an independently wealthy fellow math teacher. We created a unique and unusual arrangement which was extremely likely to succeed. It did, many times overand we are friends to this day.

I hope you'l base future postings on evidence and not one single (bitter?) experielnce.

Patrick H. Crowe

 

[BayWatch]

Jerm to answer your question on leasing. I have leased before. It was likely better than most would find. 15 year lease to own. I had no down payment, first payment after 45 days after taking over. He even left some soap and towels. We structured it as if the seller was holding the note. Every payment was ammo'd on 15 years at a fair interest rate. Every timely payment I made, I received a "credit" against the selling price" so I basically would own it out right after 15 years. I didnt have to pay for any equipment. I didnt own the building, equipment or land until the 15 years was up or I actually purchased it. I did have options if I wanted to terminate the lease so I was OK and I had penalties for paying it off to quickly so he was OK. Worked great. No the wash was not in bad shape or going under. Just a small less profitable wash than the others he had and in a tight market. Again, not likely to find. I almost walked many times before I signed because I thought it was too good to be true. Turned out great for me.