If you’re looking to obtain a car wash construction loan you might be wondering why they are so difficult to obtain. There are numerous reasons for this, not the first of which is that commercial construction loans are difficult to do to begin with. The best way to clean leather car seats is using a leather care products.
Fist, they are a startup business. Banks do not really like to do loans on startup businesses. There are no historical financials on the site. Lenders do not want to lend money on businesses that have no financial reports. It is only logical to think that you would be more inclined to lend money to an existing business than a brand new business.
Second, many banks are concerned with cost overruns. If you’re looking for a high loan-to-value loan and if there is a cost overrun, it will be more than the bank originally intended to lend. Many banks simply cease to lend on the project and they remain unfinished. There are many unfinished projects waiting to be completed and no ability to repay the loan because there are no business revenues and they can only repay the debt from personal assets.
Third, they are considered special use facilities. When you have a special use facility they tend to depreciate faster if they go into foreclosure. If a bank lent money on an apartment building or an office building and it had defaulted, the bank could hire a management company and continue to run them until a new buyer was found. Should the site go into foreclosure and be auctioned, in general an investment property such as an apartment building or office building will retain better value than a special use property such as a car wash.
When it comes to qualifying for a car wash construction loan, if you already own existing locations it will be easier to obtain a loan than those who do not own car washes. If you have never owned or if you have never managed a car wash before it will be more difficult to obtain the loan than if you had. It is true that running a car wash is not as difficult is running other type of retail establishments such as hotels or restaurants but they still need to be managed. If you do not plan on managing the car wash business directly, you definitely will want to bring in a manager that has experience running them.
If you do not currently own the land you are looking to build a carwash on it will be more difficult than those who already currently own the land. If you have already purchased land and the seller is helping you finance the property, that will be more difficult than people who own the land free and clear. If you have not identified a piece of land that you are looking to buy it will be more difficult to obtain financing. If you have not drawn up plans to build a car wash and you do not have management or ownership experience in the industry, it will be very difficult to obtain a car wash loan, but not impossible.
If you have already applied for permits with the local municipalities to build, it is more likely that you will be approved than individuals that are just starting with the process. This should be obvious because it is less work for the lender and will take less time to finish up the project.
Just because there is a piece of land car wash within 10 miles does not mean it is a good place to build a carwash. If you do not have a feasibility study it will probably be required. Lenders will want to know that this is a viable place to build the business and so should you.
If you have purchased land in the past few years and the land has increased in value, the lender might only credit you with the original purchase price. Let’s assume that you purchased the land for $300,000 two years ago and it is now appraised for $500,000, the lender may only allow it as $300,000 equity into the transaction.
Many times people do not take into consideration soft costs, such as closing costs, inventory, working capital and cost overruns when looking to obtain a loan. If you’re looking to do a high loan-to-value loan, and you do not take these additional costs and into consideration, you may be declined for a loan because the loan to value will be too high. Depending on the type of financing you attempt to obtain (SBA or conventional) the maximum loan to value will probably be in the 70-85% range.
Keep all these issues in mind you’re looking for car wash financing. If you find you do not have sufficient equity or if you find that you do not have sufficient industry experience, you might want to consider partnering with someone in this endeavor. If you partner with someone that has more capital available or has more industry experience, you may find your chances significantly increase.
Harold Jaynes has been since 1999 specializing in car wash, gas station and convenience store loans and has closed loans nationwide. If you are looking for car wash construction financing contact PetroMAC for more information about car wash construction loans.
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