Auto Repair Shop Business Loans

Let’s start by reviewing the different small business loan options or alternative funding options that are best for auto repair businesses. First, let’s determine your business funding needs then determine the available funding options and eligibility requirements, online application requirements, loan amount, and repayment terms.

Business funding Needs and Financing Options

Borrowers should define why they need additional capital. Do you want to buy real-estate for your repair shop, purchase new equipment, upgrade facilities, buy inventory or hire new employees?

• New Equipment Financing – When financing new equipment, small business owners need to make a decision between buying or leasing. In many cases it makes to consider specialized equipment financing programs. Often, distributors and manufacturers will offer this type of financing.

  However, just because the manufacturer or distributor offers financing, they may not be offering the best interest rates or repayment options. There are literally hundreds of financing companies that are specifically designed for equipment leasing or equipment financing options. Be sure to shop around for the best loan terms.

  The benefits of this type of financing is that it uses the equipment being financed as collateral for the financing program. Generally speaking collateralized financing will result in lower interest rates and better terms because it represents lower risk for the lender.

  Equipment leasing also allows the business owner to spread-out the costs over a longer term resulting in smaller monthly payments versus a lump sum payment. Also, with equipment leasing the business owner will have an option to purchase the equipment after the leasing term has ended. However, with automotive technology changing so rapidly, auto repair shop owners may choose to simply lease newer equipment.

• Real-Estate Financing – As a small business owner, there is a lot of security in owning the building and parking lots where your business is located. For this type of financing you will likely want to consider a commercial real estate loan, sometimes referred to by its acronym “CRE Loan.” While this has historically been the domain of traditional banks, many online lenders have begun offering commercial real-estate financing.

  The approval process for a CRE loan will depend on your business operating income, your personal credit and the appraisal value of the property.

• Business Line of Credit – A business line of credit (“BLOC”) works similar to a business credit card in some ways in that it acts as “ready credit” and you use it when you need it. But that’s pretty much where the similarity ends. A BLOC is generally a defined cash amount that a lender promises to extend to your business. You may use all or a portion of the line of credit as you see fit.

  After being given a line of credit, you may receive checks to draw from your account or pay bills with. Once you use any portion of the credit line, you start repaying the amount and interest according to your BLOC terms. So, unlike a traditional, lump sum loan, you only pay for the amount you use.

• Term Loans – A term loan is what most people think of as a traditional bank loan. A term loan is an agreement to borrow a specified amount of money at a defined interest rate and a defined period of time to repay the loan. For example: Your lender will give you a lump sum loan of $20,000 to be repaid over 5 years at 12% interest rate annually.

• Small Business Administration Loans – The U.S. Small Business Administration (“SBA”) is a government agency that guarantees loans to small businesses. To be clear, the SBA does not make loans, they work with SBA-approved banks and financial institutions that make loans to small businesses and guarantee repayment of those loans for qualifying companies.

  Since the SBA guarantees the to repay the loan in the event that the borrower defaults, there is virtually no risk to the lender and therefor SBA loans have very low interest rates and longer repayment terms.

  SBA programs such as the SBA 7 loan program offers a lot of flexibility in the use of the borrowed funds, while other programs are designed for specific uses such at the SBA 504 program which is a long-term, fixed rate financing that promotes business growth and job creation in certain communities.

  SBA loans require a significant amount of paperwork and documentation. These loans also require the business owner co-sign the loan and almost always require strong credit. If you have bad credit, you may not be eligible for an SBA loan.

Alternative Financing

• Merchant Cash Advance (“MCA”) – An MCA is a type of funding that requires the borrower to buy back an upfront, lump sum advance from a company which purchases a percentage of future revenue. Be advised that MCA financing is generally one of the most expensive ways to finance a business and should be used sparingly.

  Also, bear in mind that MCAs are not legally considered loans and are not subject to the same regulatory and disclosure requirements as loans. It is strongly advised that you consult an attorney and/or a financial advisor before entering into an MCA funding agreement.

  An MCA is essentially an agreement to sell a portion of your future sales revenue in exchange for the advance.