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OPERATIONSRETAIL financing capabilities. For example, maybe a facelift for your site can be a good bridge until the lenders are more comfort- able with car washes once again.” Yet with so many dollars involved, says Jeffs, “We’ve seen over the last two years that, because of the banking crisis, the credit market for car washes has become increasingly difficult and lending requirements more stringent.Many times, in order to qualify you’ve got to be in business at least five years, have a credit score above 700, show regular profits, and have a higher liquidity than lenders required in the past.” Saei says conventional borrowers can usually expect to be asked for a down payment of between 25 and 40 percent. Lenders will request several years of business financial state- ments and tax returns, corporate bank statements, a person- al financial statement and tax returns, and a resume or bio showing the operator’s experience and qualifications. “And with a construction loan,” Saei adds, “documenta- tion will be much more extensive and require a business plan, construction documents, budgets, and more.” Loan terms of five to seven years are now common with a balloon payment due at the end of term, he says, and amortization schedules vary from 15 to 25 years. “The lending process can be extremely time-consuming, onerous, and require higher credit scores, more detailed documentation, and longer approval processes than in the past,” affirms Jeffs. “Documentation requirements have increased significantly over the last two years and can include minimum of three years financial accounts, tax records, asset and liability statement and banking records, among others. And down payments can range from three months in advance up to 25 percent or more, depending on the credit approval requirements.” For car wash financing, Jeffs reports, “Five-year contracts are the norm. Longer periods are available with certain types of loans and are much more dependent on credit risk. Interest rates currently range from six to 10 percent, but can go higher depending on factors like the lender, loan amount, and credit risk.” Still, all agree that recent months have seen at least a slight easing in the availability of credit for car washes—including additional financing options. For example, Patriot Capital can provide a $150,000 line of credit with only a one-page loan application. “We use personal credit, bank information, and other non-financial information to qualify you—much like applying for a car,” says Santy. The line-of-credit option is especially appealing to small- er operators. “They often manage their tax returns to reduce tax liability,” Santy points out,“and so financing options that require two years of tax returns mean they probably won’t qualify—because they don’t show a lot of taxable income.” 24 MARCH 2011 Patriot requires two payments in advanced, but offers 100- percent project financing for car washes that covers every- thing from the equipment to the electrical. Loans for real estate are another matter and a bit harder to get, continues Santy, and most lenders will only finance up to 70 percent. In addition to traditional mortgage financing, another popular form of real estate financing,which likewise appeals to smaller as well as larger operators, is sale-leaseback financing. “Lease rates for sale-leasebacks fluctuate depend- ing on the investor and on the borrower’s credit,” explains managing director Dennis Ruben of Chicago-based NRC Realty & Capital. “Although banks will only typically loan 60 to 70 percent of the fair market value of the property for 10 years in typi- cal mortgage financing, advance rates in sale-leasebacks are usually significantly higher, with a primary lease term of 15 to 20 years and renewal options,” Ruben adds. By contrast, he says that terms for car wash equipment loans are shorter, usually five to seven years. “In my experience, people who want to add car washes to a site typically do it out of their own cash flow,”Ruben con- tinues. “The credit crisis has made it harder to get credit. Smaller operators are often reluctant to have much debt and would rather grow conservatively. But on the other hand, the data still suggests that car washes enhance revenue. If the land parcel is big enough, a car wash can bring signifi- cant benefit.” Ruben agrees that, in part because lenders are also recog- nizing the continuing value of car washes,“Credit has opened up in the last six months and underwriting has gotten a little easier. There are many aggressive and attractive financing options. So this is an excellent time to make a deal.” Taking note of application-only programs like those offered by Patriot, Jeffs concurs, “Over the last few months there are some encouraging signs of some improvement in lending requirements. The approval process is simplified by obtaining a credit score only, though the score still needs to be above 700 and only certain industry sectors are included. And it seems unlikely that further easing of the credit mar- ket will occur in the near future.” Like others, Jeffs has seen many car wash operators take a go-slow approach on expansion. “The investor market—the people who put up car washes as investments—has felt the effects of the economic downturn more than other car wash industry sectors,” he relates.“But it’s true to say that even the larger petroleum marketers have become more reluctant to borrow money to finance more car wash purchases.” As Dougherty sees it, the recession “may not have shrunk the investor segment, but it has quite possibly limited its growth. In my view, the economic downturn has really had the greatest impact on the small business investor. Lenders NPN Magazine www.npnweb.com