Financing options for Equipment: Important details to keep in mind – Ipass
When properly operating equipment is combined with high-quality water and chemistry, it results in an efficient process built on more than 100 years of innovations in carwashing the mighty Ipass. Today, unlimited wash plans and subscription-based services continue to be promoted and embraced by consumers. More driveway cleaners leave the bucket and hose, sponge, and bucket at home and prefer environmentally friendly, cost-effective professional auto service. Carwash operators rely on their equipment to keep the process going and consistently deliver the results of a dry, clean, and shining.
Additionally, as mentioned within the 2020 Professional Carwashing Industry Report, Repairs and maintenance on this machine are 9 percent of a carwash’s total operating expenses each year. Your first purchase decisions could affect the overall cost of this measure for your wash in either direction.
As with many things in life, with car wash equipment, you will get what you get for your money. Do you want to get some initial savings using recycled, used, or low-quality equipment from untrusted sources? This is an alternative, but have you done a thorough cost analysis that looks at five, ten, or further years in the future?
High-quality equipment from top manufacturers in the industry may be more expensive cost, but the cost of maintenance and repair is likely to add up quickly.
If you’re making a new or expanding your existing equipment making wise choices when purchasing equipment means taking into account your total costs of the ownership. While this equipment is costly compared with other parts of the wash like towels, you can find specialized financing options to assist in stabilizing any sticker shock.
We spoke with the insiders of the lending industry, John Paul, managing director of Coast Commercial Credit, to learn more about equipment financing and methods to ensure you don’t suffer from buyer’s regret.
The coronavirus affects
External factors, like the coronavirus outbreak shutting down portions of the largest economy on earth for long periods of time and the reverberating effects have impacted the condition of lending in the month of March. While some automated carwashes services which offered transactions via contactless were not significantly (if any at all) adversely affected due to the virus but other industries weren’t so fortunate. When the most critical sectors and industries of our country are struck the most, other markets suffer the indirect consequences.
“The overall economy is impacting underwriting for carwash equipment loans,” Paul explains Paul. “We are experiencing credit requirements increase somewhat. Banks are taking a more cautious approach due to the fact that they have more concerns to manage within their traditional mortgage portfolios. Companies that specialize in equipment financing and leasing have had a difficult time lending during the beginning stages of the mandated business closings.”
Yet the lenders are increasing their vigor in approving equipment requirements, and companies like carwashes, which are not as affected by the epidemic and can now obtain credit compared to just six months ago, says Paul.
“Those programs may include enhanced incentives for financial institutions to reduce credit criteria, make more loans and stimulate the economy,” Paul says.
Finance vs full payment
The availability of money is now back; however, is it in the best interest of an operator who makes money to purchase equipment for themselves or finance it? If 2020 was a lesson for us in the past, it was unexpected events. Do you need to make the full payment today if you’ve got the money? Paul says no, But not as fast.
“In an era that is characterized by economic instability, there is no doubt that financing is the better alternative to paying cash upfront. The uncertainty of how long this will last adds to the difficulty of deciding how to react.”
According to him, businesses must be proactive when assessing their risk and vulnerability from an operational and financial perspective. Automation might be a possible solution if the company isn’t meeting its financial targets due to inadequate technology or personnel.
“Thriving in this climate could be a sign that business owners take action to address these issues (i.e. cutting down on labor or increasing capacity) but also positively impacting liquidity (using financing instead of cash). The end result can be saving cash and reducing expenses is a wise choice especially during times of economic uncertain times.”
Loan versus lease
Operators have a variety of options to consider when they buy and lease machinery. A typical loan can help the owner pay for the purchase over time in a set amount of payments. Lastly, when the principal and interest are fully paid, the owner owns the equipment fully and free.
Another option is that an operator could opt to lease the machine with an equipment lease agreement where the lender holds an asset (in this instance, car wax machinery) but rents the equipment to the owner for a predetermined time frame and payment. After the expiration of many leases, the business can switch to a different piece of machinery or stay to the equipment leased and buy it from the loaner.
“For carwash operators, the purchase option is usually $1 or 10% of the original cost,” Paul says. Paul. “There is also an equipment lease, which is known as Operating lease. It is a lease that does not include a specified purchase option. Operating leases are rarely utilized in the carwash industry. So, it’s most likely that a carwash owner could be granted capital lease.”
According to Paul, capital equipment leases that are used to finance equipment for carwashes are similar to loans for equipment. Both kinds of loans are typically considered identically for financial statement purposes, and they have the same deductions.
“The principal differences between leases and loans is that leases need less paperwork, have lower costs and are easier to get. Carwash owners can be approval for leases for equipment of up to $400,000 using a one-page credit application in as short as one day,” asserts Paul.
The minimum down cost for a lease on equipment is around 20 percent. Owners can lease for as little as one payment due at the closing. The advantage of loans is over leases concerning the early payment. The majority of loans have lower early payments than leases. Despite that, according to Paul, most leases and loans for equipment are not paid off in the early stages.
Whatever your level of experience or the number of locations, it is possible to gain an advantage over the other carwashes with outdated equipment in your region. To encourage new operators or have problems obtaining the financing they require, Paul recommends considering the Small Business Administration’s (SBA) 10-year loan program, which demands just 10 percent down.
There are various choices for operators to think about to make sure they have the most efficient equipment for their washrooms, employees, and customers. Access to sources of capital or purchasing options could assist, but the way you decide to make use of these options is the most important thing.