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Business loans for auto repair shops

Get your mechanic shop on track with the best financing option for your needs.

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By

Rhys Subitch

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Emma Balmforth

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Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
OnDeck Business Loan
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$100,000/year
6+ months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
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Merchant Growth Business Loan
Merchant Growth Business Loan
12.99% - 39.99%
$5,000 - $500,000
3 - 12 months
$10,000 /month
6 months
Unsecured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales.

Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.
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Loans Canada Business Loan
Loans Canada Business Loan
6.60% - 29.00%
$4,000 - $500,000
3 - 60 months
over $10,000/month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.
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Specialized equipment, location, renovations, payroll and general inventory can be expensive, especially when you’re just starting out with your mechanic shop. When you’re in need of extra working capital, a business loan could help ease cash flow and assist the growth of your auto repair shop. 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 constant revenue from lots of customers and you may need a loan to purchase, maintain or upgrade your equipment, financing that’s flexible or specialized for tools and machines 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 helpful way to add working capital.
  • Equipment financing. When you need to purchase a specialized piece of equipment for your shop, you can look into a loan that is secured by what you’re purchasing. Loans secured by collateral usually offer much better APRs. You can finance everything from tools to a new lift through this method. Keep in mind you could lose your equipment should you default on your repayments.
  • Invoice factoring. This is a transparent option when it comes to the overall cost of a loan. Simply sell your open invoices at a discount, and when your customers make payments, those funds go to the lender rather than to 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.
  • Canada Small Business Financing Program (CSBFP) Loan. You can apply for these loans through a chartered bank, credit union or a caisse populaire. They are at least 75% backed by the Government of Canada. Your business must make under $10 million in revenue annually to be eligible for this program. There are some restrictions through this program, so you’ll want to make sure your business is eligible before submitting an application.
  • Business line of credit. Similar to a credit card, this revolving line of credit allows you to charge against an approved amount, pay it off and then use it again for other purchases. A line of credit usually has no expiry date, which means you can use it whenever you need access to the funds.
  • 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, with borrowing amounts up to $1.25 million, sometimes higher.

Representative example: Bob’s Auto needs three new car lifts

Bob owns a small auto shop and three of his car lifts have been deemed unsafe. He needs to replace them immediately, but doesn’t have all of the funds on hand right now since it has been a bit of a slow season and he just had to replace his businesses roof. The cost of each car in-ground car lift is $10,000.00 – which includes installation – and Bob will need a loan for approximately $20,000.00. He has enough to cover at least one lift outright, but plans to apply for a term loan to cover the cost of the other two lifts.

Bob heads online to compare lenders and is able to get approved for a term loan with a competitive APR since he has been in business for over five years and has a strong personal credit score of 810.

Cost of three in-ground car lifts$30,000.00
Loan typeTerm loan
Loan amount$20,000.00
Interest rate (APR)8.00%
Loan term2 years
Additional feesOrigination fee of 1.00% ($200.00)
Monthly payment$904.55
Total loan cost$21,909.10

*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.

4 questions to ask when comparing financing options

Even within the auto repair industry, your needs will vary greatly from a competing mechanics shop across town. Here’s some tips on how to choose the right financing 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 and fees, so it’s important to borrow only what you actually need.
  • 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 arise.
  • How much am I willing to spend in fees and charges?
    By getting a lower interest rate, you’ll likely have a lower cost overall. Be sure to look at the APR when available, which includes extra fees in the rate. Consider underwriting, document preparation, application, late and early repayment fees when looking into financing plans. Early repayment fees, also known as prepayment fees, can be especially sneaky 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 report, which can affect your credit score — unnecessary if you aren’t eligible for the loan in the first place.

How to apply

Different lenders require different documentation based on the types of financing they offer. Here are a few basic documents you’ll likely need to gather 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 mechanic 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 small business loans require you to have a full business plan in place 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 that you already own to secure a lower APR.
  • Personal documents. Have government-issued ID and other identifying documents on hand as proof that you are who you say you are. You’ll also need to provide your personal details and contact information.

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.
  • 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 make $100,000 or more in annual revenue, so you’ll likely want to scope out if there’s a minimum gross annual revenue you need to meet before applying. On the flip side, loans offered through the Government’s Small Business Financing Program have a maximum annual revenue. If you’re not sure exactly how much your business makes, it’ll be more difficult to convince a lender to let you borrow money.

7 industry tips to run a successful auto repair shop

Gathered from automative industry websites and entrepreneur blogs, here are 7 tips to help you run a successful mechanic shop:

  1. Identify your audience and market to them. Do you specialize in foreign cars? Domestic? A specific size, region, make or model? Read up on the demographics of people likely to buy those vehicles, and focus your efforts on bringing them in.
  2. 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 online and 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 and time of taking down appointments manually.
  3. 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.
  4. 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 complimentary refreshments, if possible.
  5. 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 towards popular review sites. The car repair industry thrives on online reviews.
  6. 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.
  7. 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

Get your mechanic shop on track by choosing the financing option that’s best for your needs and situation. There’s a lot of different financing options out there, but you can potentially narrow down your options quickly by knowing how much money you need access to, why you need the money and what you need to purchase.

To get started, compare your financing options to find the best fit and get ready to make your business even better than your competitors.

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