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The financial demands on an auto repair business are never ending. Small business owners who operate these businesses need steady cash flow to pay employees, purchase supplies and equipment, and ensure their shops run smoothly.
Just as your customers may be caught with unexpected, large repair costs that leave them scrambling to get a personal loan, you as a business owner may find yourself in situations where your cash flow just won’t cover your business expenses.
That’s when you may need to consider auto repair shop financing.
How business loans can help an auto repair shop
Working capital is essential for auto repair shop owners, but there may be times when you’ve laid out more expenses than you have coming in. Maybe you place large orders for tires for your shop, and won’t see that investment returned until you sell those tires, which could take months. Or maybe a customer is having trouble coming up with the money to pay for vehicle repairs, and they dispute the bill they charged to their credit card.
That’s where having easy access to business funding can ease the burden.
Another way small business loans can aid body shops is by helping them build their credit. Often, businesses don’t have solid business credit, though the owners might have good personal credit. Taking out a loan for the business and paying it on time each month can help your business credit scores, which down the line, may help you qualify for even better financing when your business needs it.
That’s especially important for businesses in the motor vehicle repair space, which may be considered risky by some lenders.
Auto repair shop costs that a business loan can pay for
Business financing can help cover a variety of costs related to the auto repair industry. Let’s start with equipment. You likely need equipment like lifts and tire changers, and those don’t come cheap, especially if you’re buying new equipment. An auto repair shop loan, including an equipment loan, could cover these expenses. Some loans will even cover used equipment.
Then you have all the tools and supplies you need to do car repairs like tires, oil, and coolant. If you place large orders for these and don’t always have the cash on hand, trade credit or a credit card could be helpful in covering these expenses.
Financing can also help you expand your auto repair facility or acquire a new location.
Basically anything your auto repair shop needs to run is something that a business loan could cover.
Understand your financing options
We’ll go into specific types of financing in a moment, but generally, business financing falls into two broad buckets:
Short-term financing is used when you need to finance something for a year or less. This type of financing often includes lines of credit that give you access to funding as needed.
Long-term financing is used for bigger projects like a new piece of expensive equipment or financing the acquisition and buildout of a new facility. These loans usually come in the form of installment loans with fixed monthly payments.
The key here is to match the type of financing with your business needs. (You’ve probably seen mismatches in financing with your customers who may have a vehicle that’s out of warranty and they still owe much more than the car is worth.)
Once you’ve thought through how long you need to borrow money, you can start to look at specific financing options.
If you’ve got excellent credit, at least two years in business and six figures in revenue, working capital loans from banks or credit unions may be an option. But many business owners have trouble getting loans from traditional financial institutions and will need to cast a wider net, or may even need to look at alternative financing.
Business loan options for auto repair shops
Here are the most popular types of financing options for businesses in the vehicle repair space:
Line of credit
A business line of credit is often the first type of financing a business owner will want to get. If you qualify, you will be approved for a line of credit for a certain amount, and you’ll be able to borrow as much as you need up to the credit limit.
Once you repay what you borrow, you can borrow again and again. Most established auto repair shop owners should have access to a line of credit for cash flow fluctuations.
Line of Credit by SmartBiz
Must have at least 2 years time in business, 660 minimum FICO score needed. Monthly payment options available at fixed interest.
Pros
- Funding amounts up to $150k per line. Transparent monthly payment schedule. No fees for subsequent draws.
Cons
- Minimum FICO of 660 required. Max NSF’s is 1 in 6 months. 6% origination fee (based on approve line $ amount).
Funding Amount
Cost
Repayment Terms
Funding Speed
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Flex Line by Revenued
Revenued utilizes revenue-based financing to provide working capital to businesses based on their revenue, not traditional factors like an owner’s personal credit score. Since launching, they’ve provided over $1 billion in funding to 30,000 + small businesses. Expand your access to working capital while only paying for what you use with the Revenued Flex Line. Bonus: When you click 'Apply now," we'll securely pass over your info, making applying with Revenued a breeze. Only answer a few additional questions on their end and you're good to go.
Pros
- No minimum credit score to apply. Approvals up to $500,000. 24/7 access to funds online and only pay for what you use. No application fee, no draw fee, no annual fee.
Cons
- At least $20k in monthly deposits is required for best offer. Not available for Sole Proprietorships.
Funding Amount
Cost
Repayment Terms
Funding Speed
Line of Credit by OnDeck
Monthly Payments and extended repayment terms (18 and 24 month terms) available. A line of credit can be a great asset to businesses who need capital on hand- fast. It allows you the flexibility to draw funds when you need it, and you only pay interest on what you use. Once approved, you can draw available funds quickly and easily without having to provide additional documentation.
Pros
- No monthly maintenance fees
- Monthly Payments available and Extended Repayment Terms (12, 18 and 24 months) Minimal paperwork
- As soon as same-day approval and funding sent by next business day
- Transparent pricing
- Use as much as you need, only pay interest on what you use
- Access available funds with one click.
Cons
- Not available in all states.
Funding Amount
Cost
Repayment Terms
Funding Speed
Term loans
If you know how much you need to borrow and how fast you will pay it back, a term loan may be a good option. It gives you a lump sum of money with a fixed repayment period that may be as short as a few months, or up to ten years or more.
Term loans may be available from banks, credit unions, or even online lenders.
Short-Term Loan by Credibly
As quickly as 4 hours
Pros
- Set payments
- Pre-qualification, which means you can pre-qualify without hurting your credit
- With strong cashflow health, low personal credit scores still have great options here
Cons
- Must have at least $15,000 a month in deposits
- Repayment terms maybe shorter for some users
Funding Amount
Cost
Repayment Terms
Funding Speed
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Short-Term Loan by Kapitus
Kapitus offers short term loans up to $5,000,000 in as little as 24 hours. The process is quick and easy with limited documentation and offers the best prepayment discounts in the industry.
Pros
- Repayment options ranging 6-18 months with fixed rates options
- Competitive discounts for those who payoff early
- Extremely competitive product for higher revenue businesses - retains a higher average funding amount
- Your offers can improve as repayment history continues
Cons
- Longer industry restriction list
- Comes with a wide range of rates and terms.
Funding Amount
Cost
Repayment Terms
Funding Speed
Short-Term Loan by Rapid Finance
Fast access to funding amounts up to $3,000,000
Pros
- Reputable funder with 20 years’ experience in the industry Loan approval within 24 hours Repayment terms up to 84 months*
Cons
- Not ideal for startup or low monthly revenue businesses Requires an established business bank account
Funding Amount
Cost
Repayment Terms
Funding Speed
Equipment financing
With equipment loans or leases, the equipment you’re getting serves as your collateral, which means you can often get good rates on these loans.
Equipment Leasing by American Capital Financial
Equipment leasing is a good source of capital to secure essential equipment, and a good alternative to a cash purchase or leveraging a line of credit.
Pros
- Ability to finance a wide range of equipment
- Lends to various business credit profiles
- Quick approval process with competitive interest rates
- No blanket liens while securing the loan with the equipment-only option.
Cons
- Payments may be higher vs
- traditional installment loans
- Longer funding timeframe than working capital products.
Funding Amount
Cost
Repayment Terms
Funding Speed
SBA loans
Another option if you have great credit is a loan guaranteed by the Small Business Administration, such as its 7(a) loan program. (There are other types of SBA loans we’ll mention shortly.)
SBA loans offer low interest rates, steady payments, and you can generally use these loans to purchase equipment and real estate, and for working capital. Keep in mind that a personal credit check will be required and you will often need good or excellent credit.
SBA Loan by SmartBiz
For high cost projects with long repayment. No immediate funds needed.
Pros
- APR as low as 11.25% with monthly repayment plans up to 10 years
- Ability to be pre-approved and review terms and conditions before needing to provide a full list of financial documents.
Cons
- Lengthy application process (30-60 days) with lower approval odds
- Requires more documents than other Bank Loan products.
Funding Amount
Cost
Repayment Terms
Funding Speed
Alternative financing options
If you’re having trouble getting approved for the financing options listed above, you may want to look at alternative financing. Here are a couple of options:
Trade credit
If you place regular orders from suppliers on a regular basis, you may be able to take advantage of trade credit where you have 30-90 days to pay your invoice. This type of financing can help with cash flow and if vendors report to business credit, will help you build business credit. Here’s a list of easy net-30 vendors that can help you get started.
Business cash advance
While not a loan, a business or merchant cash advance solves your cash crunch in the short-term. You are advanced an amount that based on past revenues (such as debit and credit card sales), and then you pay that amount back from your daily transactions, plus any fees such as an origination fee. Funding can take place as soon as the next business day. If you have bad credit, this may be worth considering, though realize the cost can be high.
Business Cash Advance by Credibly
Credibly offers flexible repayment plans with fixed rates, based on future receivables. Ideal for seasonal businesses and those with high credit card processing volumes.
Pros
- Fixed payments
- Offers the ability to pre-qualify without affecting your credit.
Cons
- Must have at least $25,000 a month in sales, Max repayment term is 15 months
Funding Amount
Cost
Repayment Terms
Funding Speed
Business Cash Advance by Capitalized Business Financing
Capitalized Business Funding also known as Capitalized.Co is a boutique funding company utilizing technology to give their customers the speed, flexibility and borrowing power needed to grow their businesses. They couple this technology with more than 20 years of financing experience to provide a personalized approach to the needs of every customer.
Pros
- Submit your application online
- Fast approval process
- Receive funds within 4 hours of qualifying
- No personal guarantees needed to receive funds.
Cons
- For borrowers with strong credit, cost of financing can be higher than other options
Funding Amount
Cost
Repayment Terms
Funding Speed
Financing for expansion
If you are ready to open another location, or perhaps move from your home garage to a standalone shop, you may need more money than a business line of credit or credit card offers. Instead you’ll want to look for larger, long-term loans.
Term Loan by OnDeck
This is a great option for businesses with consistent revenue, seeking competitive pricing working capital products. OD is known in the industry for their transparency and speed to fund. OD is the largest online lending company, which provides confidence to users with finding the right long-term partner to help fuel their company's growth.
Pros
- One application, two paths to finance your business - applicants are reviewed for both a Term Loan and Line of Credit
- Minimal paperwork
- Fast approval time
- Transparent pricing
- “White Glove” customer service
- Access to multiple lending options.
Cons
- Need a minimum of 1 yr time in business
- Not available in all states.
Funding Amount
Cost
Repayment Terms
Funding Speed
Term Loan by SBG Funding
With a quick and easy application, you get fast access to your approved funds to grow your business.
Pros
- Great for purchasing inventory and improving cash flow.
Cons
- Not ideal for startups or lower monthly revenue businesses with no business bank account.
Funding Amount
Cost
Repayment Terms
Funding Speed
Commercial real estate loans
A bank or credit union may be able to finance your commercial loan. A down payment is often required, and while payments are often calculated over thirty years, there may be a 10—20 year repayment period with a balloon payment required.
SBA 504 Loans
The SBA 504 loan program offers loans to help cover the cost of real estate or fixed assets. Also called CDC 504 loans, they feature fixed payments, low interest rates, a low down payment (usually 10%), and attractive terms to business owners with solid credit scores who qualify.
Capitalized Real Estate Financing
When seeking financing for your real estate projects, Capitalized can help you identify multiple high-quality options.
Pros
- Quick access to capital for a variety of real estate project types
Cons
- The loan is secured by the property as collateral
Funding Amount
Cost
Repayment Terms
Funding Speed
Financing with business credit cards
Just like a line of credit, business credit cards can be helpful for cash flow. Even if you pay the balance in full, you get use of the issuer’s money for a month or more. They can be helpful for short-term loans as well, though. Some cards offer 0% intro APRs which can allow you to borrow interest-free for up to a year or more.
Also most rely on the cardholder’s personal credit history (not business credit) when evaluating application, and will look at income from all sources, not just the business, so they can be helpful for startups.
Remember that most credit cards charge high interest rates if you carry a balance, and that cuts into your profits. If you pay your balance in full each month, you won’t incur these charges.
How to qualify for auto repair shop loans
Every lender has its own eligibility requirements that vary by type of financing and are tied to borrower qualifications.
Even though these are business loans, the borrower’s credit scores will likely be considered for most types of financing. Some lenders put more emphasis on your credit than others, and with them, the higher your scores, the higher the credit limit and the better the interest rates you may be approved for.
Other criteria that are very likely to be considered are your auto repair shop’s annual revenue and how long you’ve been in business. You should have a business bank account as it will be required for proof of revenues.
If your business is new, you will find it harder to find startup loans but there are options out there.
How to apply for auto repair shop loans
Once you’ve determined that you qualify for a loan, it’s time to start the application process. If you apply through a bank, you may be required to apply in person, but with online lenders, you can usually fill out a quick online application and get a decision in minutes.
As part of the approval process, you will be asked information about both your business and yourself, including:
- Business location
- How long you’ve been in business
- Annual revenue
- Loan amount you are requesting
- Personal contact information
- Social Security number
- Business bank account details
Once approved, you will be presented with your loan options, including how much you can borrow, at what rate, and repayment terms. Sign the loan agreement, and your funds will be deposited into your bank account.
Nav’s verdict: auto repair shop loans
Business owners need to ensure that they always have cash for unexpected expenses, and for auto shop business owners, a loan, line of credit, or credit cards could be that saving grace.
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Susan Guillory
Susan Guillory is an intuitive business coach and content magic maker. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.