Service Help Desk
5981 Tennyson St
Arvada, Colorado 80003 USA
+1 800.525.8248 toll free
+1 303.423.4910 direct
+1 303.430.0139 fax
623 S Service Rd Unit 1
Grimsby, ON L3M 4E8 Canada
866.658.9274 toll free
Before you decide on a specific type of financing for your car wash, you should find out what your options are. Which types of financing are available and which is the most suitable given your financial situation and long-term plans?
You can take out a loan to set up your business and agree on a purchase in which you pay the full purchase price with interest over a certain period of time. Ownership of the car wash passes to you immediately upon conclusion of the purchase contract. If you opt for this type of financing, you can check whether support is available to help you set up your business. For example, the KfW bank offers particularly favourable start-up loans.
Leasing means that the so-called lessor acquires an asset (in this case the car wash) and leaves it to you to use while the ownership remains with him. What might first sound like renting, has some peculiarities. One difference between leasing and renting is that as a lessee you are responsible for the maintenance and repairs as well as insurance, for example.
With leasing, you pay amounts agreed in advance, which remain the same over the entire fixed term. What happens at the end of this term has to be renegotiated. Either the rights of use go back to the lessor, or you wish to continue using the car wash. Here you have the option of signing a new leasing contract – the conditions are now usually much more favourable for you – or buying the car wash for the remaining amount so that ownership passes to you.
Another of the financing options for your car wash is hire purchase. Again, as with leasing, you pay certain fixed sums over a fixed period of time. However, ownership of the car wash automatically passes to you after the last instalment, and you pay the VAT for the entire price with the first instalment. Therefore, you should also specify the car wash in your balance sheet. This allows you to apply for certain grants and subsidies.
If you need to decide whether to lease or finance, you should consider a number of different aspects. As with purchasing, leasing has advantages and disadvantages. When you buy, ownership passes to you immediately, and the interest rate for the financing is usually less than that of the lease payments. So, in effect, you pay less, all in all. However, the purchase naturally affects your creditworthiness, and in most cases you have to invest quite a large amount of your own capital.
With leasing, your own capital does not have to be as high as when buying. The instalments you have to pay are covered by the income from the car wash. Their amount is determined exactly in advance and allows an exact calculation over the entire period of the contract. In addition, the instalments are immediately tax-deductible. Since ownership remains with the lessor, you do not have to record the asset in the balance sheet and can therefore demonstrate continued liquidity and creditworthiness. However, since the ownership is not with you and you are bound by a contract for a certain period of time, you cannot simply sell the facility if your circumstances suddenly change drastically (unless you choose the option of the terminable lease). The decision as to which of these two ways of financing your car wash fits better, should therefore be taken after careful consideration and answering the questions: How much capital do I have? Do I know for sure that I would like to own the facility myself, or do I have other plans for the medium term?
You pay your instalments regularly for both leasing and hire purchase and receive the right to use the car wash in return. In the case of hire purchase, the term can be varied. However, since you take over the financial ownership on signing the contract and pay the VAT in full with the first instalment, you must include the car wash in your balance sheet. In return, however, you have the option of applying for grants and subsidies such as investment allowances, which are not available to you as a lessee. Ultimately, hire purchase is also a purchase on credit. It is therefore an option for you if you are already absolutely sure that you definitely want to purchase the car wash.
It would be best if you could simply pay your car wash directly and in cash. It is best for you if you can avoid maturities and paying interest that drive up the price. However, hardly anyone has the necessary funds for a car wash in the petty cash. Accordingly, the next cheapest option is often the financing of the purchase. But here the conditions for your loan depend on your capital and your creditworthiness. If financing is out of the question and you would still like to purchase the car wash, hire purchase is the method of choice. Here you pay your instalments for a certain period plus the agreed interest and get the car wash at the end for the remaining balance. You are free to apply for government subsidies. If you are not yet sure that you want to own the car wash, leasing is the answer. This gives you the right to use the car wash without it becoming your property.