You’re wondering how to grow your auto repair business, and you’ve decided a loan could help. With so many funding choices and lenders, though, the process to get your mechanic shop financing can be overwhelming. With that in mind, we’re breaking down your options and providing you with the information you need to know to apply for an auto repair shop loan.
How Will You Use Your Mechanic Tool Financing?
Even if you have money in reserves, you might not want to tap into your funds for a big purchase. Obtaining a small business loan for your auto repair shop could help you preserve your working capital for everyday needs. Let’s look at a few reasons you might apply for auto repair business financing.
Get New Equipment
If your equipment and tools have seen better days, and you’re looking to upgrade, auto repair equipment financing can help. Whether you need new welding devices, diagnostic equipment or vehicle lifts, there are various funding options available. Depending on the specific type of financing, you could use your funds to purchase or lease the machinery you need.
Increase Your Parts Inventory
Keeping a steady supply of the inventory you need to run your garage successfully is vital. For mechanic shops, financing might help with maintaining stock levels of inventory, such as tires, filters, batteries and more. If you own an auto body shop, financing could help ensure your workers have the high-quality paint and collision repair materials they need to operate.
Grow Your Business
Perhaps you’d like to expand to another location or add square footage to your existing shop. Or maybe you’d like to increase your advertising and market to new clientele. Whatever the case, you can use financing to help you build your automotive repair business.
Get Help for Everyday Expenses
Maybe your business is experiencing a lull, and you need help with operational expenses to keep your doors open. If that’s the case, there are financing options that can help you with your cash flow until business picks up. You can use borrowed funds to pay rent, utilities and your staff.
How Much Can My Business Qualify For?
Best Auto Repair Business Loans and Financing
Loan options abound in the lending world. Check out a few funding types you might consider when you’re deciding how to grow your auto repair business.
If you’re looking for mechanic tool financing, consider equipment financing, which you can use to purchase or lease machinery and tools. With equipment financing, the machine serves as collateral for the loan, providing the lender security in case you’re unable to keep up with your payments. Depending on your credit score and the type of equipment being purchased, some lenders may finance up to 100% of the value. In other cases, up to a 20% down payment could be required.
Business Term Loans
Business term loans can range in repayment periods from a few months to several years. Short-term loans, for instance, are typically repaid in less than 18 months, compared to 5 years or more with longer-term loans.
While interest rates for short-term loans are generally higher than you’d find with longer term loans, this type of financing is often easier to qualify for. Payments for short-term loans may be daily or weekly instead of monthly, depending on your terms, and automatically deducted from your bank account. Term loans can be used to purchase equipment, help with cash flow shortages and cover operational expenses.
Business Lines of Credit
If you think you’ll need to tap into funds more than once, you might consider a revolving business line of credit. Lenders approve you up to a certain credit limit, and you can use your line of credit when you need it. And if there are months when you don’t need it, that’s OK too. You’re only charged interest on the amount you use. Additionally, once you make a purchase and start to pay down your balance, your credit limit is restored accordingly.
The government-run Small Business Administration (SBA) partners with lenders, guaranteeing loans designed for small business owners. Because of this guarantee, SBA loans are considered less risky for lenders. If you have a credit score above 650 and have been denied for a conventional bank loan, consider this option.
While SBA-backed loans take longer to fund than other alternative loans, they offer more competitive interest rates. SBA Express loans are the fastest SBA loan you can obtain, with financing available within 30 days of approval. Repayment terms range from 5-10 years, and loan amounts are available up to $350,000.
Interest rates for SBA Express loans of $50,000 or less cannot exceed the Prime Rate plus 6.5%. For loans greater than $50,000, the interest rate cap is Prime plus 4.5%. As of October 31, 2019, the U.S. Prime Rate is 4.75%.
Merchant Cash Advances
Merchant cash advances (MCAs) are not loans but advances based on your business’s future sales. With traditional MCAs, your payments, which could be daily or weekly, fluctuate based on your sales. As such, there is no fixed repayment period. The more sales you have, the quicker you pay off the advance. If you need fast access to funds, have been in business for less than a year and have a credit score in the low 500s, this type of financing may be an option for you.