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Business loans for auto repair shops
Get your garage going with the best financing available.
Specialized equipment, location, payroll and general inventory can be expensive to keep up, especially when you’re just starting out. Renovations can make finances for your shop tight as well.
When you’re in need of extra working capital, a business loan could help ease cash flow and help your auto repair shop grow. We take you through your options, how to compare them and what you need to apply.
What are the best business loan options for auto repair shops?
The type of financing you choose depends on how your company generates revenue and what you’ll use the loan funds for. Since auto repair shops bring in revenue from lots of customers and you may need a loan to maintain or upgrade your repair tools, financing that’s flexible or specialized for equipment could be ideal.
- Merchant cash advance. A merchant cash advance is a one-time loan that you repay using a percentage of your daily sales. When you’re in a lull but still have regular business, a merchant cash advance can be a way to add working capital.
- Equipment financing. When you need to purchase a specialized piece of equipment for your shop, you can look into securing a loan using your purchase — and often offers a better interest rate. Finance everything from point-of-sale equipment to a new hoist through this method.
- Invoice factoring. This is a transparent option when it comes to the overall cost of a loan. Simply sell your discounted open invoices, and when your customers make payments, those funds go to the lender, rather than you. If you have open invoices, you could potentially use factoring as a way to get cash for when you need it — for example, to renew an ad or get additional parts.
- SBA loans. The Small Business Administration has guidelines that banks follow to offer guaranteed loans. Guarantees from the federal government tend to ease some of the qualification standards, with approved amounts up to $5 million. An SBA 504 program loan may work in your favor for bigger real estate purchases, such as expanding your current location or moving to a new one.
- Business line of credit. Similar to a credit card, this revolving line of credit allows charge against an approved amount, pay it off and then use it again for other purchases. With promotional periods available, you can potentially make a big purchase and pay no interest if it’s paid off by the end of the promotion.
- General purpose business loans. Both online and in-store providers offer these loans. You may be interested if you’re looking for a loan that affords you freedom in how you spend it, including using it for multiple types of purchases. They generally come with a fixed repayment term of up to 10 years.
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4 questions to ask when comparing financing options
Even within the auto repair industry, your needs will vary greatly from a competing shop’s across town. Here are ways to see if an offer is right for you:
How much do I want to borrow?
Not all options will allow a minimum or maximum amount that meets your needs. Borrowing more than you need can lead to paying unnecessary interest, so it’s important to get close to the amount you need only.
When would I like to repay the loan?
Shorter terms sometimes come with the benefit of a lower overall cost of your loan, but it might not be feasible for shops with a lower cash flow. Take into account how much you’re able to pay back, and plan for any emergencies that may pop up.
How much am I willing to spend in costs?
By getting a lower interest rate, you’ll likely have a lower cost overall. Be sure to look for the APR when available, which includes extra costs in the rate. Consider underwriting, document preparation, application, late and prepayment fees when looking into financing plans. Prepayment fees can be especially tricky if you want to cut down on the cost of the loan by paying it off early.
Am I eligible?
Before you apply, make sure you meet a lender’s minimum qualifications. Some applications require a hard pull on your credit, which can affect your credit score — unnecessary if you aren’t eligible in the first place.
How to apply
Different lenders require different criteria based on the types of financing they offer. Here are a few basic documents to ready regardless of where you end up applying.
Documents and information to prepare
- Proof of income and revenue. Well-documented business revenue and personal income can attest to your ability to repay the amount borrowed. Make sure to gather bank statements, the previous year’s tax documents or other official documentation of income. If your auto repair shop predominantly accepts cash payments, be sure to keep receipts and have an archive system in place for records.
- Detailed budget. Proof of your ability to plan ahead and make reasonable, attainable goals can help win over lenders. Many SBA loans require you to have a full plan that you present to the loan officer, rather than just a budget. Be sure to look into the specifics of what any given lender requires.
- Current asset documentation. You might be able to use specialized equipment along with any other big-cost company assets to determine your rate if you choose to secure a loan with them.
- Personal documents. Have government-issued ID and other identifying documents on hand as proof that you are who you say you are.
Mistakes to avoid when applying
- Not having a solid business plan ready to go. So important, we’re mentioning it twice: A detailed business plan can help sell your ability to pay back a loan. Make sure that you’ve got clear, clean, achievable goals and documentation to back up any progress you’ve made, if possible.
- Not meeting the minimum time in business requirement. Many lenders require your business to be established for a specified time before considering you for a loan — usually at least one to two years. Make sure that you meet this requirement before applying for financing. If you’re just starting out, consider a startup loan instead.
- Not knowing your exact revenue. Some lenders require that a business makes $100,000 or more in annual revenue, so you’ll likely want to scope out if there’s a minimum you need to meet before applying. If you’re not sure exactly how much your business makes, it’ll be hard for the lender to verify.
7 industry tips to run a successful auto repair shop
We gathered tips from automative industry websites and entrepreneur blogs. Here are seven to help you run a successful auto repair shop:
- Identify your audience and market to them. Do you specialize in foreign cars? Domestic? A specific region, make or model? Read up on the demographics of people likely to buy those vehicles, and focus your efforts on bringing them in.
- Make your appointments seamless and predictable. Take the time and resources to invest in scheduling software that you can access online from a desktop or mobile device. People are busy, and the ability to schedule an appointment on the move without dealing with a phone call can be a convenience that pulls customers back — while also saving you and your employees the hassle of taking down appointments manually.
- Hire the best to do the best job. Your reputation hinges on your employees doing great work. Invest in good people who understand what they’re doing and align themselves with your shop’s values.
- Make your customers feel like a million bucks. Customer retention is important, and a happy customer is one who is much more likely to return. Provide a ride home if a customer’s car has to stay more than a few hours, a welcoming waiting area and refreshments, if possible.
- Encourage reviews. People are much more likely to leave a negative review than a positive one. When a customer appears satisfied with the job you’ve done, point them toward popular review sites.
- Reward referrals. Marketing through ads isn’t the only way to grow your customer base. Small rewards for referrals can help generate more business for as little as a gift card to a local coffee shop.
- Hold simple maintenance demonstrations. Share your knowledge with loyal customers and your local community. Small upkeep like refilling wiper fluid, checking tire pressure, changing windshield wipers and checking an engine’s oil may be routine for you, but it could be unfamiliar to your customers. A small, free demonstration can build goodwill and keep customers happy.
Bottom line
Keep your garage on track to success by pinning down the financing option that’s best for your situation. There’s a lot to explore, but you can potentially narrow down your options quickly by knowing what it is you want and why.
Compare your options, find the best fit and get ready to make your business even better than your competitors.
Frequently asked questions
How long does it take to hear back regarding my application?
Approval can take anywhere from a few minutes to a few weeks, depending on your financing and lender. Traditional banks and long-term loans tend to take longer, whereas something like a merchant cash advance may result in faster approval.
How long does it take to complete the application?
Applications can take anywhere from a few minutes to a few days to complete. Timing largely depends on the type of loan you’re seeking and the lender you’re applying with.
SBA loans are notorious for the amount of paperwork required, whereas an invoice factoring application can take just a few minutes.
How do I get a business loan with a low credit score?
You’ll find lenders that consider applicants with less-than-perfect credit. The loan terms offered, however, can be less than ideal, with higher interest rates than for those with better credit.
Get started with our guide on bad-credit business loans, or read up on steps to improve your credit score.
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