Leasing Car Wash Equipment

[allthis4adream1]

I am interested in Leasing Car Wash Equipment.

How does it work?
Has anyone done it?
What are the pitfalls?
What to look out for?

Please let me know what you all think, what you have heard or your experiences. Thank you.

 

[Buzzie8]

Most of my professional life before owning my two washes I was in the equipment leasing industry. I have three leases on equipment right now but know all the in's and out's of the lease documentation. Here is what you want to look for in a lease to make sure it is fair to you:

1. Rate - most lease rates for third party (independent leasing companies) are exorbitant. Most leasing companies who deal with the car wash industry fall into this category. To get an accurate rate you must know the following factors, the term of the lease, how many advance payments, the total funding amount, and the end of lease term option. Some smaller banks that have their own leasing departments can be competitive but you still need to watch. (PM and I can get you your true rate)

2. Term Options - if you have a term option of "fair market value" it could become a nightmare at the end of the lease. My advice is to stay away from this if you know you want to own the equipment at the end. It does allow you to write off the payment as a operating expense vs. a capital expense but most lessors will squeeze you real hard at the end of a lease and demand a very high purchase price for you to get out of the lease. Even though they never want to own this equipment they will play a good fear game and in most cases it will cost you. If you have a 10% purchase option or a $1 purchase option it becomes a time purchase disguised as a lease which is not a problem. It will be treated as a capital purchase for accounting reasons if it has a $1 buy-out.

3. Evergreen clauses - watch out for an "evergreen" clause. This allows the lessor to automatically extend the lease if you do not notify them in writing at the end of the lease term (usually 90 days prior).

4. Full pay-out - if you want to refinance any of your debt, unlike a commercial loan most lessor will make you pay a full pay-out (payments remaining X payment) to pay off lease instead of remaining principal.

Some of the advantages of leasing are as follows:
A. Usually has much faster approval process.
B. Allows you to conserve capital and your credit lines
C. Can have some tax advantages if structured properly.
D. Can have a positive effects on a balance sheet if structured correctly.

Expect to pay a little higher rate for a lease vs a straight commercial loan. (all of my leases are at 8% right now which might seem high but are very aggressive when it comes to small ticket lease transactions)

Hope this helps!
Buzzie

 

[Earl Weiss]

Another issue to be aware if is that the "Lessor" is typicaly some third party, not the Seller. So, just because you owe money on the lease does not mean you can use this for leverage if their are equipment problems, warranty service problems or something like that.

If the stuff turns out to be junk or the Seller is out of business and you can't get parts you stioll need to pay on the lease.

For most equipment pars are pretty generic - shafts, motors and bearings you you could probably substitute other mfger parts. But, for anything with electronics, the parts my be proprietary and if something goes out you may not be able to replace it.

 

[pitzerwm]

In WA, even if the equipment seller sells the lease, they are still liable for warrantee and those kinds of problems. Of course, if they go out of biz, you are screwed either way.

 

[soapy]

I have leased several automatic carwashes over the years. I go with a 5 year lease with a $1 buyout at the end of the lease. Luckily I have them all paid off now but if I were to get another automatic i would probably lease again. Saves a lot of capital up front. Most lease companies will want a subordination on the equipment so they can get it off the property if the business fails. Some lenders will grant this and some won't so be sure before you start working on a lease.