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Updated: Apr 8, 2020
Purchasing a car is a significant investment because the expenses are ongoing. Even if you pay for your vehicle in cash, and you want that car to last you will have to pony up the dough for scheduled maintenance.
There will be up-keep costs and repairs that you’ll have to think about, which is why there will always be a need for a good auto mechanic.
But if you’re opening an auto repair shop, it may take time to establish your business and generate a steady flow of customers. And even experienced business owners know that customer demand will ebb and flow.
So many auto mechanics find that they need a small business loan to manage cash flow or deal with an emergency. Fortunately, you have options when it comes to auto repair shop loans.
The type of financing you apply for and the lender you choose will depend on your business specifics and your planned use of proceeds. Listed below are four different types of small business loans for auto repair shops.
Auto repair shops require a lot of equipment to serve the needs of their customers. And a lot of this equipment can be costly, so you may not have the cash on hand to purchase it outright. Fortunately, you will have many inventory financing options open to you.
An equipment loan is similar to an installment loan. You’ll receive a lump sum of money outright, and then make monthly payments to pay down the balance on loan. The equipment that you’re purchasing will often serve as collateral for the loan.
You can also consider leasing the equipment you need for opening your auto repair shop. With a lease, you’ll make monthly payments on the equipment, and once the contract is up, you’ll either buy it at market value or return the equipment.
A revolving line of credit is similar to a credit card. Instead of receiving a one-time cash payment, you have access to a credit limit that you can draw on as needed.
A revolving line of credit is a good option as a small business loan for auto repair shop businesses that occasionally need help managing cash flow or working capital expenses. You only have to repay what you’ve borrowed, and you can reuse these funds once you’ve paid off the balance.
The average auto mechanic will spend between $7,500 and $11,000 on a basic toolbox and assortment of tools. If you need highly specialized tools, these costs can be much higher.
Some schools do provide grants for mechanical tools, but if this isn’t an option for you, a microloan could help. Microloans typically range between $500 and $50,000 and are designed to meet smaller financing needs. Microloans are a good option for new business owners and anyone looking to build credit.
You can also receive auto repair shop loans for general business purposes. These loans generally provide more flexibility with how you spend the funds and are useful for multiple purchases. You can receive these loans through banks, online lenders, or the SBA.
The application process will largely depend on the lender’s requirements. Most lenders will require extensive documentation, including a business plan, proof of income, and a list of your business’s current assets.
A lender will also check your personal and business credit score, and they’ll want to know how long you’ve been in business. Once you have your documentation together, you can begin looking into different lenders.
Comparing your options will make it easier to find the lender that will offer you the most favorable rates and repayment terms. However, applying for a small business loan for your auto repair shop is not always a quick process, especially if you’re trying to go through a bank or credit union.
These lenders tend to have stringent requirements, and you will likely have to go through a lengthy underwriting process to receive the funding you need. For that reason, many businesses find it faster and easier to use an online lender.
Funding Circle has many small business loan options that could be a good fit for auto repair shops. The application process is quick, and you can receive the funding in as little as 24 hours. Contact us to learn more about our auto shop loan options.