With the proper management, a car wash business can be highly profitable as the demand for these services continues to grow. In fact, the American car wash industry is expected to be valued at $17.34 billion by 2027. This growth is driven by the speed and convenience car wash services provide. It’s also propelled by trends in automation, consumer consciousness about environmental concerns, and the enhanced customer convenience offered by tools like mobile apps and online booking services. It’s therefore, no wonder you’re in the car wash business — but whether you’re in the process of establishing your own services or planning to upgrade your current machinery, car wash equipment will take up a considerable portion of your financial plan. Thankfully, you don’t have to finance it entirely out of pocket. Here’s what you need to know about financing car wash equipment.
First Things First: Conduct a Financial Analysis
A car wash business is highly profitable: self-serve car washes earn around $40,000 a year, while tunnel car washes earn up to $700,000 annually. However, budgeting for car wash equipment requires a comprehensive financial plan that takes many factors into consideration.
In addition to high upfront costs, you will have to account for taxes, loan repayments, recurring slow seasons due to weather, and unexpected financial costs for damages and repairs. You must also review past financial reports to gauge revenue and growth. This allows you to determine a reasonable budget for the new equipment.
Working with a financial analyst helps you make these calculations with a bit more precision. They can make sense of your financial data to estimate future revenues and expenditures. This gives them a solid basis for calculating the return on investment on your car wash equipment and other expenses. They also provide unique insight since they take industry research into account before helping you set a reasonable budget. Most importantly, they can help you decide on a financing option with a repayment plan suited to your business model. There are a few car wash equipment financing options they may recommend for your business.
What are the Primary Car Wash Equipment Financing Options?
Getting an equipment loan is the conventional route for small businesses needing to fund machinery. Equipment loans allow you to own an asset with machinery as the primary collateral throughout the loan term. But once you’ve paid your debt, this equipment will belong to you. An evident advantage of this is generating profit with new tools while you repay your loan.
It’s important to note that applying for equipment loans may be more difficult for start-up car washes. Lenders favor higher personal credit and business history, so you may be required to be in operation for at least a year. Nevertheless, equipment loans allow you to protect your cash flow while profiting from more efficient and productive equipment. Financing services at Kleen-Rite are 100% tax deductible with low monthly payments, and terms range from 12 to 60 months in length. With an easy application process, you can choose the best deal based on your business’ current capacity to pay.
While equipment loans are approved based on your business’s financial history, a personal loan assesses your ability to pay based on your financial situation and credit score. There are also often no restrictions about using a personal loan to fund your business. This option is therefore a better fit for start-up car washes to procure equipment: it’s much faster and easier to secure approval for a personal loan than an equipment loan.
However, it’s important to note that you will be personally liable for repayment since personal loans are filed under your name. Failure to do so will result in a significant decrease in credit scores. This makes it a risk if your business is still in the early stages, where success is not guaranteed. Nevertheless, personal loans remain a more accessible financing option that offers more attractive interest rates if you have a good credit score.
An equipment lease essentially involves renting a piece of machinery. The lender allows you to use their car wash equipment for a fixed period of time as long as you pay regularly. Often, the equipment itself is the collateral, so if you default on your debt, the lender will simply reclaim it from you.
One of the disadvantages of equipment leases is that some investors may see your lease as a liability. Since the equipment doesn’t belong to you, it isn’t considered an asset in your books. Still, equipment leases do require very low upfront costs. You may also be able to buy the machinery with a balloon payment at the end of your contract. Lastly, upgrading your car wash equipment can be much easier since you don’t need to pay upfront for new tools.
Investing in new car wash equipment can help make your business more profitable and efficient. With a solid financial plan, you can choose the best financing option for your new machinery.
Jenelle Brickman is a freelance writer whose interests lie in current economic trends. She strongly believes that everyone should have access to sound financial advice. When she isn’t researching her next article, she enjoys going to the beach and hiking through nature trails.