Auto Repair Shop Loans: How to Get Financing for Your Business
The auto repair industry is profitable and will continue as inflation continues to drive up the price of new cars. Many people need cars, and if their car breaks down, you’ll be ready to provide a reliable solution at a fair price to fix their car!
But do you have the necessary equipment? Are you still waiting for additional financing to invest in new equipment?
That’s when auto repair business loans can help. You can secure financing to hire experienced technicians and purchase new equipment to grow your service level for your repair shop and handle more business.
In 2022, the market of auto mechanics is expected to increase by 3.6%. If you’re a small business owner, that means improving your business now should be a top priority. To start improving, you need additional financing. And that can be tough to obtain if you don’t know what steps you should follow.
In this post, we’ll cover the different types of auto repair business loans available, as well as the requirements and processes involved in obtaining them. So if you’re ready to take your business to the next level, keep reading!
What are Auto Repair Business Loans?
Auto repair business loans provide you with the money you need to invest in your business. They can be an initial investment or a short-term solution when you’ve been rejected from getting a bank loan or don’t have enough time to wait for a traditional financing source.
Although they can be called many things, auto repair shop loans are typically short-term. Your first option should be choosing a short-term loan if you need immediate cash right now to help grow your business.
Your other option is applying for (and waiting to obtain) a long-term loan. These types of loans could take weeks or even months, depending on the financing source you choose and its requirements.
Auto repair shops looking to expand their services need to evaluate their goals and expenses. You can’t consider expansion if your costs are higher than your profits.
So, what type of expense is absorbing most of your money? It’s crucial to know which type of costs are draining you most out of cash to prioritize those and secure financing for them.
What are the Main Costs of Running an Auto Repair Shop?
Auto repair shop owners encounter many types of expenses after their business. Here are the three most common fees:
1. Equipment Costs
Engine hoists, vehicle lifts, and air compressors have a high price tag for small auto repair shops. In the age of technology, it’s not enough to take care of those bare equipment essentials. Cars are continuing to get ‘smarter,’ which means a higher demand for auto repair businesses to utilize advanced technology for diagnosing issues.
Equipment for auto repair shops costs a lot if you factor in size and quality, and auto repair loans can help cover those costs.
2. Insurance
Insurance premiums for liability coverage can get quite expensive, and those expenses typically will fall on a higher cost in services provided by an auto repair business. Auto repair shop financing can help cover the insurance cost for your business and help avoid increasing the price of services for clients.
3. Rent
An auto repair shop located in an area with lots of traffic drastically increases the ability for its business to succeed; more cars means more potential customers. If you want many clients to visit your shop, you need considerable parking space and another area to park those cars to work on them. Locating the company in a high-traffic area may translate to rent and financially demanding taxes.
Whatever way, shape, or form of the cost, loans for auto repair are an essential part of operating a professional and successful auto repair business.
Why You Should Consider Getting an Auto Repair Loan
If you’re wondering how an auto repair shop loan can be helpful, check out our top three recommendations for getting a loan:
1. To Cover the Basics
The daily operation of an auto repair shop can take a toll on your bank account, and that’s how business loans for auto repair shops come in handy.
Some examples of basic everyday operational expenses like:
- Training and hiring new mechanics.
- Buying supplies and tools.
- Paying for rent and utilities.
- Paying taxes and insurance fees.
No doubt, if you want to continue running your business and keep it off the ground, you need to take care of the basic expenses.
2. To Cover Marketing and Advertising Costs
While the auto repair industry is rewarding, it also brings a fair share of competition. That’s why it is crucial to stand out from the crowd effectively.
Loans for auto repair shops are often used to improve the company’s exposure and bring in more customers. Though billboards and newspaper ads still make their impact, it’s becoming increasingly essential to develop and maintain a digital presence too.
Use auto repair shop loans to establish a top-notch professional website and personality on social media platforms.
3. To Scale Up Your Business
Scaling up your business takes careful consideration, planning, and timing. But, auto repair shop loans can help take the company to the next level for those shops that have done well and want to continue growing.
Whether you want to hire more mechanics, build additional space, or relocate to a better location, loans can make scaling up easier.
Auto Repair Financing Options: Which One is the Right Choice for Your Business?
When searching for loans, you need to consider the type of loan you require. Do you want to update your equipment? Or do you need to cover your monthly operational expenses?
Signing up for the correct type of loan can significantly impact your financials. So here are five specific business loans you can consider depending on your business goals.
1. Equipment Financing: Best Auto Shop Loans for Equipment
Auto repair equipment comes in many different shapes and sizes. There are oversized items like vehicle lifts and air compressors and smaller ones like brake lathes, transmission jacks, oil caddies, and strut compressors. Auto repair business loans can be the go-to solution regardless of what equipment you need to purchase, replace, or fix.
Some features of equipment financing loans:
- Auto repair shops with bad credit can be eligible
- Interest rates are around 4-6%
- Repayment period: 2-6 years
- No need to pay assets in full
2. SBA Loans: Best Auto Repair Shop Loans for General Purposes
The U.S. Small Business Administration or SBA provides small business loans through their lenders. SBA loans can guarantee up to 85% of the loan.
The SBA can act as a ‘safety net’ for borrowers and lenders, making it easier for both parties. SBA auto repair shop loans are among the easiest ones a small business owner can qualify for.
Qualifications and features of SBA Loans:
- FICO credit score of 500+
- Ideally, two years in business or more
- Interest rates starting at 6.5%
- No minimum monthly revenue required
- Loans ranging $30,000-$5,000,000
- Monthly repayment schedule
- Payback period: 5-25 years
3. Business Line of Credit: Best Auto Repair Shop Loans for Occasional Access to Funds
When an auto repair shop needs to make emergency repairs due to weather damage, or if seasonal changes slow down the cash flow, getting a business line of credit is one of the best solutions out there.
Business lines of credit work like business credit cards, giving you access to cash when you need it.
Qualifications and features of a business line of credit:
- Stay within the credit limit
- Pay monthly minimum
- Time in business: at least three months
- Minimum monthly revenue: $5,000
- Interest rates range 1%-10%
- Pre-arranged repayment schedule
4. Unsecured Business Loan: Best Auto Repair Shop Loans for Low Risk and Large Sums
Unsecured auto repair business loans offer business owners a way to obtain financing without providing collateral as a requirement to qualify. That translates to less risk for the borrower and stricter parameters on the other preparation conditions.
The best part about unsecured business loans is that it becomes much easier to be eligible for other auto repair shop financing if one qualifies.
Qualifications and features:
- Shorter approval process: 48-72 hours
- Interest rates usually are higher than most other loans
- Shorter repayment period: 3-18 months
5. Merchant Cash Advance: Best Auto Repair Shop Loans for Short-Term Expenses
Merchant cash advances are short-term loans that offer businesses an advance from a company in exchange for all of the merchant’s future credit card sales. The business can keep running as usual and pay back the loan with a fixed percentage of every credit card sale.
Many businesses find this option useful because they can receive the funds quickly, and it doesn’t require any collateral.
It’s best to take out merchant cash advance Loans only when needed and use them as quickly as possible.
Why Apply for A Business Loan with Select Funding?
Searching for a suitable loan can take a lot of time. Using traditional banks, paperwork, and long application processing times will increase your waiting time and put you more under pressure.
If you’re looking for short loans to finance your daily operations or long-term loans to cover your expansion goals, our lending experts at Select Funding are here to give you a hand. Fill out our application with relevant information about your business and we can get you the cash you need as quickly as possible!
