Auto Repair Shop Loans and Financing

Auto Repair Shop Loans and Financing

Auto Repair Shop Loans and Financing

Small business owners who operate auto repair facilities need steady cash flow to pay employees, purchase supplies and equipment, and ensure their shops run smoothly.

But what happens when you don’t have the cash in your pocket to cover larger expenses? That’s when it’s time to consider business loans for auto repair shops.

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.

That’s where having 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 increase your business credit scores, which could, down the line, help you qualify for even better financing when your business needs it.

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 facility or acquire a new location. 

Anything your auto repair shop needs to run is something that a business loan could cover.

Business Loan Options for Auto Repair Shops

You’ve got several financing options for your auto repair business, and each has its own benefits.

Working Capital Loans

If you’ve got excellent credit, working capital loans from banks, credit unions, or online lenders may be a good place to start. But do shop around: even if you have a longstanding relationship with your bank, you might find a better rate elsewhere on term loans.

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. SBA loans offer low rates and long repayment periods, and you can use these loans to purchase equipment and real estate, and for working capital.

Line of Credit

Loans like the ones above give you a lump sum of cash all at once, but if you’d rather have access to cash when you need it, consider a business line of credit. Once you repay what you borrow, you can borrow it again and again. Most established auto repair shop owners should have access to a line of credit for cash flow fluctuations.

Equipment Financing

There are even loans designed just for purchasing equipment for your auto repair shop. With equipment loans, the equipment you’re buying serves as your collateral, which means you can often get good rates on these loans.

Credit Cards

Business credit cards can be helpful if you need to run out and pick up a few items for your shop at the store. Just remember that most have high interest rates; if you pay your balance in full each month, you won’t incur these charges.

Trade Credit

If you place regular orders from suppliers (such as the tire vendor we used in our example above), you may be able to negotiate trade credit where you have 30-90 days to pay your invoice. This type of financing can help with cash flow.

Merchant Cash Advance

While not technically a loan, a merchant cash advance solves your cash crunch in the short-term. You are advanced an amount that is typically based on your debit and credit card sales, and then you pay that amount back from your daily transactions, plus any fees such as an origination fee. If you have bad credit, this may be worth considering, though realize the cost can be high.

How to Qualify for Auto Repair Shop Loans

Borrowers of each of the above types of loans and financing must meet certain criteria with lenders to be approved. Specifics may vary from one lender to another.

First, your 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.

If your credit could use some work, learn how to establish business credit before applying for financing.

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. If your business is in the startup stage, you may find it more challenging to qualify for business loans with good rates.

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.

Monthly payments typically begin the month following the receipt of funds.

Nav’s Verdict: Auto Repair Shop Loans

Business owners need to ensure that they always have cash for unexpected expenses, and for auto repair shop owners, a loan, line of credit, or credit cards could be that saving grace.

This article was originally written on April 28, 2021.

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