Just wondered how people go about financing a new iba. I purchased a wash last year that has 4 ss and an old hydrospray rainmaker. Would like to update but not sure the best way to finance this. I spoke with one of the lending companies listed on razor website and basically they wanted 17% interest over 5 years . This seems crazy to me. Lease may be cheaper. Just wondered how others went about new equipment purchases when you don’t have a lot of cash. The wash we purchased was pretty ran down. We don’t have a loan as we paid cash for wash. We have spent a lot fixing it up and building customer base back up but we are still a small wash in a town of about 8,000
iba financing
- Thread starter DrewB
- Start date
robert roman
Bob Roman
The old rule of thumb is to assume monthly lease payment of $2,000 per $100,000 of equipment.
Leasing companies will have requirements such as minimum credit score of 600. Another factor these companies consider is ability of business to support debt.
Banks and lenders evaluate this ability by using debt service coverage ratio (DSCR).
DSCR is a measure of cash flow available to pay current obligations. Ratio states net operating income as a multiple of debt obligations due within one year, including interest, principal, sinking-fund and lease payments.
Ratio SBA is currently using to evaluate new carwash projects is 1.251.
For example, if monthly net operating income is $3,000 and expected monthly lease payment is $2,000, DSCR would be 1.5 (3,000 / 2,000).
Since 1.5 is greater than 1.251, the leasing company would most likely approve the loan.
Flip side is cash flow (pre-tax) is cut from $3,000 to only $1,000 per month.
Leasing companies will have requirements such as minimum credit score of 600. Another factor these companies consider is ability of business to support debt.
Banks and lenders evaluate this ability by using debt service coverage ratio (DSCR).
DSCR is a measure of cash flow available to pay current obligations. Ratio states net operating income as a multiple of debt obligations due within one year, including interest, principal, sinking-fund and lease payments.
Ratio SBA is currently using to evaluate new carwash projects is 1.251.
For example, if monthly net operating income is $3,000 and expected monthly lease payment is $2,000, DSCR would be 1.5 (3,000 / 2,000).
Since 1.5 is greater than 1.251, the leasing company would most likely approve the loan.
Flip side is cash flow (pre-tax) is cut from $3,000 to only $1,000 per month.
tdlconceptsllc
Well-known member
Have you asked around locally to borrow private money or refi with the bank since the wash is paid for like mentioned above use the wash as collateral if its doing good currently is another option or a line of credit
Overachiever
Active member
I've had a hard time trying to finance a new machine. The banks I've talked to all seem to want the current equipment with current prices to be making enough money to fit into the formula that robert posted above or some other similar calculation. I've tried to tell them they let me buy a fixer upper and now they aren't financing the fixing part, haha. They don't seem to care about any other factors like equity in the current mortgage, personal income, high credit scores, etc.
Meanwhile they seem willing to give people millions to build new express tunnels despite in my opinion it being substantially more risky (I've seen several fail around here).
Meanwhile they seem willing to give people millions to build new express tunnels despite in my opinion it being substantially more risky (I've seen several fail around here).
I agree with you that’s why I was wondering myself if people were taking out personal credit lines, etc. If I was a crazy busy wash it wouldn’t be a problem but we bought a dump, fixed it up and business is tripled but we are limping along with the auto and a new one would bring less headache and I believe even more business
robert roman
Bob Roman
“I've tried to tell them they let me buy a fixer upper and now they aren't financing the fixing part….”
“….we bought a dump, fixed it up and business is tripled but we are limping along with the auto….”
Bottom line is you didn’t borrow enough money or you had overly optimistic projections.
Now both washes might be stable but not generating sufficient cash flows to support debt for improvements (growth).
The bank’s right. It’s not a good idea to borrow money when this condition exists.
Old Rainmaker may be obsolete but functional. So, what is causing limping along condition?
Generally speaking, operators can find ways to squeeze more out of the business by first looking for any issues with products and prices, wash quality, marketing, loyalty program, website, phone app, etc.
Make more money and then try to borrow for upgrade or retrofit.
“….we bought a dump, fixed it up and business is tripled but we are limping along with the auto….”
Bottom line is you didn’t borrow enough money or you had overly optimistic projections.
Now both washes might be stable but not generating sufficient cash flows to support debt for improvements (growth).
The bank’s right. It’s not a good idea to borrow money when this condition exists.
Old Rainmaker may be obsolete but functional. So, what is causing limping along condition?
Generally speaking, operators can find ways to squeeze more out of the business by first looking for any issues with products and prices, wash quality, marketing, loyalty program, website, phone app, etc.
Make more money and then try to borrow for upgrade or retrofit.
