It seems you can’t throw a rock these days without hitting a “car wash coming soon” sign. But what is it about a car wash that makes it such an appealing business opportunity? And what are your financing options? Let’s take a closer look at why car washes are one of the fastest growing industries and how you can start one yourself using the SBA 504 loan.
Is a Car Wash a Good Business Venture?
With a global revenue of over $29 billion in 2021 and an expected compound growth rate of 3.1% through 2030, yes, car washes remain a good investment for business owners. There are several reasons for the success of car washes as a business:
- Steady demand: increased interest in car maintenance and more spending power mean that car washes are almost always in demand. A constant and reliable customer base is essential for a solid bottom line.
- Scalability: with the right strategy and location, car wash businesses can easily scale operations by offering additional services such as express or contact-free washes and detailing.
- Community engagement: establishing a local car wash often fosters community ties by creating jobs and acting as a go-to spot for residents.
- Environmental regulations: many areas are limiting or prohibiting residential car washing as a way of protecting the environment and reducing water use. Car washes can help accommodate residents who are subject to such regulations.
- New technology: car washes were once largely a seasonal business. But, thanks to new technology, like subscription-based services and indoor facilities, car washes are no longer as susceptible to seasonal dips in revenue.
How Can an SBA 504 Loan Be Used for a Car Wash?
Review of the SBA 504 Loan
An SBA 504 loan is a favorable financing option specifically designed to assist small businesses in purchasing fixed assets, such as real estate, equipment, or facilities. These loans offer competitive terms, low down payments, and fixed-rate financing, making them an attractive choice for entrepreneurs seeking capital to establish or expand their business.
When it comes to building or expanding a car wash business, you might use your SBA 504 loan for a wide variety of applications, including:
Property acquisition or construction: you can purchase an existing car wash and update or upgrade fixtures with your loan; or, you can purchase land in a prime location and build a car wash from the ground up.
Equipment: you can use your SBA 504 loan to purchase the necessary machinery, including sprayers and tunnel and water reclaim systems. (Note: you cannot use an SBA loan to purchase every-day supplies, such as soap, chemicals, and sponges.)
Renovations/Upgrades: an SBA 504 loan could be used to purchase new equipment or finance upgrades to existing machinery.
Going Green with a Car Wash
A car wash presents an especially good opportunity to implement eco-friendly practices. You can use an SBA 504 loan to help reduce energy and water use. For example, you could install high pressure water dispensers rather than using hot water. You could also take steps to prevent water runoff and recycle used water for future customers.
Not only is going green an environmentally responsible choice, you will be rewarded by the SBA. Businesses using these loans to improve their energy rating and reduce consumption can qualify for three times as much in loans (up to $16.5 million vs $5.5 million).
Are There Any Drawbacks to Owning a Car Wash?
As with any business operation, there are certain considerations you will want to be aware of when it comes to owning and operating a car wash. These include:
- Seasonal Fluctuations: although they are not nearly as affected by climate as in the past, adverse weather can still have a negative impact on car wash sales. You’ll want to keep this in mind, especially if you live in an area with especially cold weather.
- Competition: due to the high demand and potential for success, the car wash industry is quickly becoming saturated. With so many car washes popping up seemingly on every corner, owners may need strategic differentiation and considerable marketing efforts to stand out.
- Operational Costs: overall operational costs of a car wash are relatively low, especially if you have implemented ways to reduce energy and repurpose water. However, with a business that relies on heavy machinery to operate, you can expect to spend more on maintenance and repairs.
- Regulatory Compliance: adhering to environmental and local regulations for water usage and waste disposal can be complex and costly. Again, however, going green can qualify you for a significantly higher loan amount, helping to mitigate these types of costs.
Is a Car Wash a Single Use Property?
Another consideration before you purchase a car wash is its status as a “single use property.” Under the SBA, single use properties are considered to be inherently more risky. This is because, should these types of businesses default, they are difficult to repurpose for any other type of business. Other types of businesses that qualify as “single use” include movie theaters, gas stations, and amusement parks.
To mitigate this increased risk, the down payment requirement for single-use businesses is generally 5 percent higher than with other businesses (15 percent vs 5 percent).
How to Start a Car Wash in Colorado
Launching or expanding a car wash business can be an exciting venture, and the SBA 504 loan can make it happen. In Colorado, CEDCO is your go-to certified development company for securing a 504 loan or refinancing an SBA 7a loan. Whether you’re aiming to revamp an existing car wash or build one from scratch, we are here to help. Call or go online today to schedule a consultation.