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.<\/p>
A merchant cash advance<\/a> 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.<\/p> When you need to purchase a specialized piece of equipment for your shop, you can look into equipment financing<\/a>, which is a loan that’s secured by what you’re purchasing.<\/p> Since you likely have a lot of large invoices from customers with payment terms of 30 to 90 days, you can consider invoice factoring to access those funds early. Simply sell your open invoices at a discount, and when your customers make payments, those funds go to the lender rather than to you.<\/p> You can apply for a CSBFP loan<\/a> through a chartered bank, credit union or a caisse populaire. They’re up to 90% backed by the Government of Canada.<\/p> 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.<\/p> Both alternative and traditional lenders offer business term loans<\/a>. 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.<\/p> 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 business’s roof. The cost of each in-ground car lift is $10,000, which includes installation. He has enough to cover at least one lift outright, but plans to apply for a term loan of $20,000 to cover the cost of the other two lifts.<\/p> 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.<\/p> *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 lender, the borrower’s financial situation and other factors.<\/small><\/p><\/div> Even within the auto repair industry, your needs will vary greatly from a competing mechanic’s shop across town. Here are some questions to ask yourself to choose the right financing for you:<\/p> 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.<\/p> 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.<\/p> 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.<\/p> Some lenders can take weeks to process your application, while others offer same-day funding. So, if your need is urgent\u2014such as replacing a broken lift\u2014you may need to consider alternative lenders as they move quicker than traditional lenders like banks.<\/p> If you’re ready to apply for your loan, follow these steps:<\/p> Most lenders ask for a detailed business plan when you apply for business loans for auto repair shops, so creating one is a good place to start. Outline what you plan to do with the loan, how you plan to repay it, your business’s financial history and an overview of your operations.<\/p> After creating your business plan, you should have a better idea of your business’s needs, which can help you choose the right type of financing. For example, if you need to purchase new diagnostic tools, equipment financing may be best for you, but if you want to renovate your shop, a term loan is better.<\/p> You may have to pay a fee or complete a hard credit check (which can impact your credit score) when applying for business loans for auto repair shops, so ensure you’re eligible first. Lenders typically consider your personal and\/or business credit history, financial history and years in business. Eligibility requirements from traditional lenders can be stricter, so if you don’t meet them, consider online lenders\u2014just expect to pay a higher interest rate.<\/p> Once you know which loans you’re eligible for, you can compare your options and finalize your choice. Consider the different rates and fees, read reviews of each lender and determine whether the monthly payments will fit your budget.<\/p> Most lenders have a list of documents you need to include in your application, such as:<\/p> It’s finally time to apply for your loan, which you can typically do online. Make sure you have all your documents with you to make the process quicker.<\/p> If you’re approved, you’ll receive a business loan agreement. Read through it carefully and highlight details like the repayment schedule, fees, interest rate, penalties and collateral. If you agree with everything, sign the agreement and wait for your funding.<\/p> Try to avoid these common mistakes when applying for your loan to improve your chances of approval:<\/p> Gathered from automotive industry websites and entrepreneur blogs, here are 7 tips to help you run a successful mechanic shop:<\/p> 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.<\/p> Take the time and resources to invest in scheduling software 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\u2014without dealing with a phone call\u2014can be a convenience that pulls customers back, while also saving you and your employees the hassle and time of taking down appointments manually.<\/p> 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.<\/p> Customer retention is important, and a happy customer is one who’s 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.<\/p> 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.<\/p> 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.<\/p> 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.<\/p> Get your mechanic shop on track by choosing the financing option that’s best for your needs and situation. There are a lot of business loans for auto repair shops out there, but you can potentially narrow down your options quickly by knowing how much money you need, why you need the money and what you need to purchase.<\/p>Equipment financing<\/h4>
Invoice factoring<\/h4>
Canada Small Business Financing Program (CSBFP) Loan<\/h4>
Business line of credit<\/h4>
Business term loans<\/h4>
Representative example: Bob’s Auto needs three new car lifts<\/h4>
Cost of three in-ground car lifts<\/td> $30,000.00<\/td><\/tr> Loan type<\/td> Term loan<\/td><\/tr> Loan amount<\/td> $20,000<\/td><\/tr> Interest rate (APR)<\/td> 8.00%<\/td><\/tr> Loan term<\/td> 2 years<\/td><\/tr> Additional fees<\/td> Origination fee of 1.00% ($200.00)<\/td><\/tr> Monthly payment<\/td> $904.55<\/td><\/tr> Total loan cost<\/td> $21,909.10<\/td><\/tr><\/tbody><\/table> 4 questions to ask when comparing business loans for auto repair shops<\/h3>
How much do I want to borrow?<\/strong><\/h4>
When would I like to repay the loan?<\/strong><\/h4>
How much am I willing to spend in fees and charges?<\/strong><\/h4>
How fast is the approval and funding process?<\/strong><\/h4>
How to apply for business loans for auto repair shops<\/h3>
1. Create a business plan<\/h4>
2. Determine the type of financing you need<\/h4>
3. Check your eligibility<\/h4>
4. Compare lenders<\/h4>
5. Prepare your documents<\/h4>
6. Apply for the loan<\/h4>
7. Review the loan terms<\/h4>
Mistakes to avoid when applying for business loans for auto repair shops<\/h3>
7 industry tips to run a successful auto repair shop<\/h3>
1. Identify your audience and market to them<\/strong><\/h4>
2. Make your appointments seamless and predictable<\/strong><\/h4>
3. Hire the best to do the best job<\/strong><\/h4>
4. Make your customers feel like a million bucks<\/strong><\/h4>
5. Encourage reviews<\/strong><\/h4>
6. Reward referrals<\/strong><\/h4>
7. Hold simple maintenance demonstrations<\/strong><\/h4>
Bottom line<\/h3>