Auto Repair Shop Business Loans

& Alternative Financing

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Applying will not affect your credit score

Auto repair financing is specifically designed for the special funding needs of automotive repair shops. The auto repair business often requires a significant initial investment for new shops; as well as ongoing capital investments to maintain and upgrade equipment. Aside from the physical equipment such as lifts and compressors, digital diagnostic equipment and electric vehicle repair technology requires significant investments.

The auto repair industry also requires a significant investment in training and certification for mechanics to stay current with changing technology. Auto repair shop owners often will share the costs of training employees to stay competitive as automotive technology evolves at the fastest pace in history.

While the auto repair shop business is considered a service industry, there is also a hospitality side of the business. Small business owners also want to make their customers comfortable with accommodations like functional waiting lounges with WIFI, televisions and refreshments. Many auto repair shops also offer loaner vehicles to their customers when repairs will take several days to complete.

Small Business Loans and Alternative Financing for Auto Repair Shops

The good news is that auto repair shop funding makes up some of the more common types of small business financing. Auto repair shop also have a high approval rate considering that auto repair shops are virtually recession-proof and most have consistent cash flow, because the millions of cars on the road are in constant need of repair and maintenance.

Like most small businesses, auto repair shop owners should start to assess their business needs. For example: do you need cash for equipment, upgrading technology, acquiring real estate or extra cash for working capital?

Understand that there are quite a few business financing options that are designed for different needs will help you find the right lender and the right loan program that fits your business need. On this page we will help you determine the right type of loan or type of financing that meets your requirements.

Finding the Right Type of Loan or Financing

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. 

Application Process and Eligibility for Auto Repair Business Financing

In many cases, especially with a startup business, business financing will rely on the credit score and credit report of the business owner. However, the application process for business financing has become streamlined in recent years as technology allows finance companies and lenders to make quicker decisions and make financing available to a broader range of borrowers.

There are certain things small business owners can do to improve their chances of getting the right financing on the best terms possible.

  • Business Bank Account – It is very important for you to maintain a business bank account for you company. Lenders will rarely extend credit to business owners that do not have a business bank account.

  • Company Legal Formation – Like maintaining a bank account, financial institutions want to see that you have the discipline to make the appropriate business and regulatory filings for your business.

  • Credit Report/ Credit History – You will likely be asked to submit your business or personal credit report. A business credit history begins with filing with a company like Dun & Bradstreet and obtaining a DUNS number for your company. A DUNS number is like a social security number for your business and helps you create and track a commercial credit history.

    For startups and younger companies with a limited operating history, lenders will rely upon your personal credit history and credit score to base their lending decisions.

    Before applying for business financing, obtain a copy of your credit report to make sure it is accurate. Often, there are errors or expired information on your credit report that may affect your credit score. If you find outdated or inaccurate information, you can open a dispute with the credit agencies to ask that they remove the inaccurate or outdated information about you.

    Removing any derogatory information from your credit report can boost your credit score significantly, resulting in lower interest rates and higher loan amounts. Some credit report advisors recommend disputing any and all negative items on your credit report since rejected disputes do not affect your score and reporting companies are obligated to respond within 30 days.

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