Loans and financing for auto repair shops

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Small business owners who operate auto repair facilities need a constant cash flow to pay their employees, purchase supplies and equipment, and keep their shops running smoothly.

But what happens when you don’t have the money in your pocket to cover larger expenses? This is when it is 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 are times when you have budgeted for more expenses than you entered. Maybe you are placing large orders for tires for your shop and you won’t see that investment paid off until you sell those tires, which could take months.

This is where business financing can ease the burden.

Small business loans can also help body shops by helping them increase their credit. Often, businesses do not have strong business credit, although owners may have good personal credit. Taking out a business loan and paying it off on time each month can help boost your credit scores, which could ultimately help you get even better financing when your business does. need.

Costs of auto repair shops that a business loan can pay for

Business financing can help cover a variety of costs associated with the auto repair industry. Let’s start with the equipment. You probably need equipment like elevators and tire changers, and these don’t come cheap, especially if you are 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 perform car repairs like tires, oil, and coolant. If you place large orders for these and don’t always have cash on hand, a trade credit or credit card might be useful to cover these expenses.

Financing can also help you expand your facility or acquire a new location.

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

Business loan options for auto repair shops

You have several financing options for your auto repair business, and each has its own advantages.

Working capital loans

If you have great credit, working capital loans from banks, credit unions, or online lenders can be a good place to start. But shop around: Even if you have a long-standing relationship with your bank, you might find a better rate elsewhere on term loans.

SBA loans

Another option if you have good 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 buy equipment and real estate, and for working capital.

Credit line

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’ve paid off what you borrow, you can borrow it over and over again. Most owners of established auto repair shops should have access to a line of credit for cash flow fluctuations.

Equipment financing

There are even loans that are meant only for the purchase of equipment for your auto repair shop. With equipment loans, the equipment you buy acts as collateral, which means you can often get good rates on these loans.

Credit card

Business credit cards can come in handy if you need to run out and buy a few items for your boutique at the store. Remember that most have high interest rates; if you pay off your balance in full each month, you won’t have to pay these fees.

Commercial credit

If you place regular orders with suppliers (like the tire supplier we used in our example above), you may be able to negotiate a 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 cash advance from the merchant solves your short-term cash flow crisis. You receive an amount that is usually based on your debit and credit card sales, and then pay that amount back from your daily transactions, plus fees such as setup fees. If you have bad credit, it may be worth considering, although you realize the cost can be steep.

How To Qualify For Auto Repair Shop Loans

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

First, your credit scores will likely be taken into account 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 can be approved for.

If your credit might take some work, learn how to establish trade credit before you apply for financing.

Other criteria that are very likely to be considered are the annual income of your auto repair shop and how long you have been in business. If your business is in the start-up phase, you may find it more difficult to qualify for commercial loans with good rates.

How to apply for a loan for an auto repair shop

Once you’ve determined that you qualify for a loan, it’s time to start the application process. If you are applying to a bank, you may need to apply in person, but with online lenders, you can usually complete a quick online application and get a decision in minutes.

As part of the approval process, you will be asked for information about yourself and your business, including:

  • Place of business
  • How long have you been in business
  • Annual revenue
  • Loan amount you are requesting
  • Personal details
  • Social Security number
  • Company bank 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 generally begin the month after receipt of funds.

Nav Verdict: Auto Repair Shop Loans

Business owners need to make sure 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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