SBA Loan for a Car Wash - Ultimate Guide

August 31, 2023

Adam Hoeksema

There are roughly 56,000 car wash businesses in the US and interest in the industry has been growing due to the passive income nature of the business model.  If you are considering starting your own car wash or buying a car wash business, an SBA loan can be a good financing option.  

I spent a little over 10 years as the Executive Director of an SBA Loan Fund where we approved nearly 2,000 loans during my time at the business. Pulling from that experience and my work at ProjectionHub helping car wash businesses get started I wanted to do a deep dive into how to use an SBA loan for a car wash.  

I plan to cover:  

With that as our guide, let’s dive in!

Top SBA Lenders for Car Wash Businesses

Celtic Bank has been the top SBA lender based on the number of SBA loans made to car wash businesses over the past 6 years.  Celtic Bank has made 99 SBA loans to car washes with an average loan amount of $2.6 million.  Below you will find the top 10 SBA lenders in the car wash industry based on data from 2018 - 2023. 

Lender # of Loans Approved Average Loan Amount
Celtic Bank Corporation 99 $2,613,486
Metro City Bank 56 $3,270,498
The Huntington National Bank 45 $294,531
U.S. Bank, National Association 28 $64,329
Paradise Bank 24 $2,350,038
Wells Fargo Bank, National Association 23 $733,983
New Millennium Bank 22 $2,106,500
TD Bank, National Association 21 $313,624
Open Bank 20 $2,083,700
Newtek Small Business Finance, Inc. 19 $579,005

Top SBA Lenders to Finance a Car Wash Acquisition

If you are looking to buy a car wash with an SBA loan the top SBA lender list over the last 6 years shifts just a bit.  Metro City Bank is the top SBA acquisition lender for car washes with 32 loans with an average loan size of $3.4 million between 2018 and 2023.

Lender # of Loans Approved Average Loan Amount
Metro City Bank 32 $3,436,578
Celtic Bank Corporation 19 $1,586,574
Open Bank 12 $2,259,500
The Huntington National Bank 11 $707,091
Paradise Bank 10 $2,840,200
New Millennium Bank 10 $2,387,000
Hanmi Bank 8 $2,905,250
VelocitySBA, LLC 6 $1,281,500
Midwest Regional Bank 6 $768,167
Bank of Hope 5 $1,838,000

Top SBA Lenders for a Car Wash Startup

When it comes to starting a car wash business with SBA loans, Celtic Bank Corporation has been a leading lender. They've approved 34 loans for car wash startups, with an average loan amount of approximately $3,242,059. Below, you'll find the top 10 SBA lenders for financing car wash startup businesses.

Lender # of Loans Approved Average Loan Amount
Celtic Bank Corporation 34 $3,242,059
Stearns Bank National Association 9 $2,904,722
Paradise Bank 7 $2,794,129
Stellar Bank 6 $2,702,050
Summit State Bank 6 $2,722,500
Republic First Bank d/b/a Republic Bank 6 $1,433,333
Stone Bank 5 $2,644,160
Citizens Bank 5 $1,564,340
First Bank of the Lake 4 $3,613,000
Georgia's Own Credit Union 4 $3,354,675


Resource: Find an SBA Lender that is the perfect fit for your situation

What is an SBA Loan?

An SBA loan refers to a type of financing that is backed by the U.S. Small Business Administration (SBA). The SBA provides a guarantee to lenders for a portion of the loan, which can make it easier for borrowers to qualify and can result in more favorable terms than traditional financing.

In the context of a car wash business, an SBA loan can be used to:

  1. Start a New Car Wash Business: This could involve purchasing land, building the car wash structure, buying equipment, and covering initial operational costs.
  2. Purchase an Existing Car Wash: An entrepreneur might use an SBA loan to buy an existing car wash business rather than starting from scratch.
  3. Expand or Renovate: A car wash owner might use the funds to expand their current operations, renovate an older facility, or add new features or services.
  4. Refinance Existing Debt: If a car wash business has existing high-interest debt, they might use an SBA loan to refinance and lower their monthly payments.
  5. Working Capital: SBA loans can also be used to finance day-to-day operational expenses, such as payroll, utilities, and inventory.

Key SBA Loan Programs that might be relevant to a car wash business include:

  1. 7(a) Loan Program: This is the SBA's primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan and the lender's requirements.
  2. CDC/504 Loan Program: This is designed for businesses to purchase fixed assets like real estate or large equipment. It's particularly useful for larger projects where a business, like a car wash, may be looking to buy land or make substantial renovations.
  3. Microloan Program: This is for very small loan amounts and can be used for starting a business, purchasing equipment, or for working capital.

If considering an SBA loan for a car wash business, it's crucial to:

  • Understand the specific requirements of each loan type.
  • Ensure that the business meets the SBA's definition of a small business.
  • Work with a bank or lending institution that is familiar with SBA loans.
  • Have a comprehensive car wash business plan in place to demonstrate the viability of the car wash venture.

Lastly, keep in mind that while the SBA provides a guarantee, borrowers are still required to pledge collateral and are personally responsible for the repayment of the loan.

Can I Get an SBA Loan for a Car Wash?

Yes, you can get an SBA loan for a car wash, but there are some nuances to consider when it comes to the "passive business" aspect.

The SBA typically favors businesses in which the borrower is actively involved in daily operations, as they want to ensure that the primary purpose of the business is operations and not just real estate investment. However, car washes are somewhat unique. While many car washes can operate passively (especially automated ones), they are often considered operational businesses as opposed to purely real estate investments.

Here are some things to keep in mind:

  • Active Management: While car washes can be somewhat passive, demonstrating active involvement in the business can help with loan approval. If you can show that you or a business partner will be hands-on in the daily operations or have an active role in managing the car wash, it can strengthen your loan application.
  • Business Plan: A detailed business plan is crucial. It should emphasize how the business will operate, project financials, marketing plans, and management structures. If you plan to be more hands-off, detailing the roles of the managers and employees you'll hire can be essential.
  • Eligibility Criteria: The SBA has specific eligibility criteria. It’s a good idea to familiarize yourself with these criteria or work with a knowledgeable lender or advisor who can guide you through them.
  • SBA 7(a) vs. 504: The SBA 7(a) loan program is generally more flexible regarding the use of funds, whereas the 504 loan program is geared more toward real estate and major equipment purchases. Depending on your specific car wash business model and needs, one may be more appropriate than the other.
  • Affiliation Rules: The SBA has affiliation rules that determine how businesses are related based on control. If you have other business interests, especially other passive businesses, these rules can impact your eligibility.
  • Guarantee: Remember, the SBA provides a guarantee to the lender, but the borrower (you) will still need to provide collateral and a personal guarantee for the loan.

In summary, while the SBA does favor active businesses, obtaining a loan for a car wash, which can be somewhat passive, is still possible. It's essential to demonstrate that the business is viable, profitable, and well-managed, whether or not you're involved in daily operations.

Is an SBA Loan a Good Option for a Car Wash? 

An SBA loan can be a good option for a car wash, depending on the specific needs and circumstances of the business. Here are some of the pros and cons of using an SBA loan for a car wash:

Pros:

  • Favorable Terms: SBA loans often have longer repayment terms, which can result in lower monthly payments. This can be advantageous for a business like a car wash, where there might be fluctuations in cash flow due to seasonal variations or other factors.
  • Lower Down Payment: Compared to traditional commercial loans, SBA loans can require a smaller down payment, making it more accessible for those without a large amount of capital.
  • Competitive Interest Rates: Due to the government guarantee provided by the SBA, these loans often come with competitive interest rates.
  • Comprehensive Use of Funds: Funds from SBA loans can be used for a variety of purposes, from purchasing real estate and equipment to working capital and refinancing existing debt.
  • Access to Capital: For new entrepreneurs or those without an extensive credit history, an SBA loan can provide access to capital that might be challenging to obtain through traditional channels.

Cons:

  • Lengthy Approval Process: The application and approval process for an SBA loan can be longer than other types of financing. This could be a disadvantage if you need funds quickly.
  • Personal Guarantee: SBA loans require a personal guarantee from the business owner(s). This means that if the business defaults on the loan, the owner(s) could be personally liable.
  • Fees: While interest rates can be competitive, SBA loans can come with additional fees that might not be present with other types of financing.
  • Collateral Requirement: Depending on the size and terms of the loan, collateral may be required. This could be in the form of the business's assets, real estate, or other property.
  • Operational Scrutiny: Because of the detailed business plan requirement and the SBA's involvement, there might be a higher level of scrutiny on how the business is run. Some business owners might find this invasive.

Whether an SBA loan is a good option for a car wash depends on the individual needs and circumstances of the business. If you can navigate the application process and meet the requirements, the favorable terms and competitive rates can be very beneficial. However, it's essential to consider all the pros and cons, possibly consulting with a financial advisor or business consultant, to determine the best financing option for your car wash business.

What is the SBA Loan Application Process for a Car Wash?

Obtaining an SBA loan for a car wash involves several steps, from the initial preparation to the final disbursement of funds. Here's a step-by-step overview of the SBA loan application process:

Research and Choose a Lender:

  • Not all banks and financial institutions are authorized to offer SBA loans. Start by identifying SBA-approved lenders in your area or those that have a history of lending to car wash businesses.
  • Consider banks with which you already have a relationship, as they might be more inclined to finance a familiar customer.

Prepare a Detailed Business Plan:

  • This is crucial for any SBA loan application. Your business plan should include a detailed description of the car wash business, market analysis, marketing and sales strategies, organizational structure, and comprehensive car wash financial projections.
  • If you're buying an existing car wash, provide its financial history.

Gather Necessary Documents:

  • Personal background and financial statements for all principals.
  • Business financial statements, if already operating.
  • Ownership and affiliations (other businesses you may own or are involved in).
  • Loan application history.
  • Income tax returns (both personal and business).
  • Resumes for all business principals.
  • Business lease (if applicable).

Complete the SBA Loan Application:

  • This is the actual form you'll fill out to request the loan. Your lender will provide you with the appropriate forms. The primary form is the SBA Form 1919, which is the Borrower Information Form.

Collateral Documentation:

  • For many SBA loans, you'll need to provide collateral, which can be assets from the business or personal assets. Prepare documentation for these assets.

Review and Negotiation:

  • Once you've submitted your application and all relevant documents, the lender will review everything. They might come back with questions, need further documentation, or want clarifications.
  • If the lender approves your application, they will send it to the SBA for their guarantee approval.

SBA Review:

  • The SBA will review the application and the decision made by the lender. This can take some time, depending on the loan size and type.
  • If the SBA approves, they provide a guarantee for the loan, after which the lender can proceed with finalizing the loan.

Loan Closing:

  • Once approved, you'll move to the closing process. This will involve signing loan documents, providing any last-minute documentation, and finalizing terms and conditions.

Disbursement of Funds:

  • After the loan closes, the lender will disburse the funds. The disbursement schedule will depend on the nature of the loan and its intended use.

Throughout this process, maintain open communication with your lender. Each lender might have slightly different requirements or processes, so be proactive in understanding what's expected and meeting those requirements.

Well, I hope this guide has been helpful as you consider an SBA loan for your car wash business.  If you have any questions along the way, don’t hesitate to reach out! 

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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