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How You Can Scale Your Auto Repair Business Through Small Business Funding

How You Can Scale Your Auto Repair Business Through Small Business Funding

The automotive industry is a constantly evolving one. With the development and manufacturing of new cars, we see an influx in demand for mechanics to keep them running smoothly.

But this also means you need some serious cash reserves if you want your business to survive on its own without any help from outside sources like banks or other financial institutions that provide loans.

The good news? There may be ways around these issues. Financing options such as auto repair business loans can come into play when things quiet down during slow seasons.

A line of credit or short-term loan can also give auto shop owners just what they need, so inventory investments don’t go wasted due to limited budgets.

Read on to learn more about the types of loans available for your auto repair shop.

When Should You Consider Getting an Auto Repair Shop Loan?

There are several reasons why you may need a business loan. Many auto repair owners seek investments that will grow their business or gain some extra cash to ensure they can meet their essential financial obligations.

Some common reasons why most auto repair shop owners seek financing include:

  • Ensuring Consistent Cash Flow
  • Purchasing Inventory
  • Covering payroll, taxes, fees
  • Expanding their services
  • Increasing their workforce
  • Buying or repairing equipment

What Are The Types of Auto Repair Shop Loans?

1. Business Line of Credit

A business line of credit, which functions as a business credit card, is an excellent tool for auto repair shops because it provides them with the flexibility and replenishment they need. With a business line of credit, you can borrow what you need and pay down the balance. Funds are also replenished so that you can use the line again.

Most auto repair stores will use a business line of credit to cover upfront inventory costs or bridge cash flow between invoices to focus on their work.

2. Short Term Business Loans for Auto Repair

Online lenders offer short-term loans that are excellent options for those who need quick access to capital. With terms that range from three months up until three years, short-term online loans make it possible for small businesses like auto repair shops to get the money they require and pay back quickly - often at lower costs than traditional banks offer.

With this loan, you can apply in minutes and get your funds within days. Many auto repair shops can use a short-term business loan to pay for revamping their shops, purchasing inventory, or running marketing /advertising campaigns.

3. Equipment Financing

Equipment financing is another great way to finance the purchase of business equipment (besides a line of credit).

Any tangible asset that’s used in business operations can be considered business equipment. Tangible assets include:

  • A shoplift
  • Tire changer
  • Alignment machines for auto repair shop owners.

Many auto repair shops use equipment financing to buy new equipment without tying up their existing capital.

4. SBA Working Capital Loan

An SBA Working Capital Loan is a government-backed loan, partially guaranteed by the Small Business Administration (SBA). These loans are generally more challenging for small business owners to qualify for due to their stringent requirements.

A snapshot of their requirements:

  • Two years in the auto business
  • Minimum personal FICO of 650
  • An auto shop owner must run a profitable business.

5. Working Capital Advance

A Working capital advance has a higher cost and shorter-term, which means it’s viable if:

  • You have a poor credit score
  • You have been in business for a short period
  • You need funding quickly (you can have financing within three days).

A snapshot of their requirements:  

  • 6 months in the auto business
  • Minimum personal FICO of 500 
  • Minimum annual gross revenue of approximately $180K.You can be approved up to $500k.

6. Bank Loans

A traditional bank loan typically requires higher qualifications regarding your time in business, credit score, and annual revenue.

You will also need collateral to secure this loan and the process to receive funding takes longer than other types of loans (at least two months). A bank loan has a lower interest rate and longer-term options if you get approved.

7. Merchant Cash Advance

The MCA is a popular choice for those who need quick cash. The interest rates are usually higher; that’s why most businesses seek this type of financing as a last-case scenario.

Unlike loans, the repayment is made by automatically drawing a percentage from future credit and debit card transactions.

Some key features:

  • FICO credit score 500+
  • At least six months in business
  • Minimum monthly revenue: $10,000
  • Repayment by automatically drawing from future debit and credit card transactions
  • The payment period lasts until the total amount is repaid.

How to Get Approved for an Auto Repair Shop Business Loan

Several factors can impact your ability to qualify for auto repair business loans. If you want to increase your chances of getting a loan, then you’ll want to review the following three main points to improve your approval rating.

1. Increase Your Monthly Revenue

Most lenders look at your monthly revenue to check your ability to repay the loan on time. If your revenue is less than impressive, you need to search for ways to create recurring revenue streams.

For instance, subscription services may create an incentive for customers to seek your shop to capitalize on promotions. Subscriptions may also generate word-of-mouth advertisements as customers share the offered perks with their friends and family.

2. Improve Your Credit Score

Your credit score is one of the most important factors lenders consider when assessing your loan application. While the required score can vary from one lending institution to the next, it’s the better your credit score, the higher the chances of getting approved, and soon you’ll receive better offers.

If you want to improve your credit score, look no further than using credit cards. Just ensure to go about it wisely to reach your target credit score.

3. Check Your Cash Flow

Cash flow is the total amount of money transferred in and out of the company. Auto repair shops looking to qualify for loans need to optimize their budgeting.

Ensure to look at your business’s cash flow to see where you can make adjustments that will ultimately improve your profit margins and increase your chances of getting approved for auto repair shop financing.

Scale Up Your Auto Repair Business with Reliable

Financing Options

So, you’re looking to expand your business and take it to the next level in the auto industry? You could apply for a business line of credit, an SBA loan, or even a merchant cash advance.

When you’re ready to grow your business, our lending experts at Select Funding are here to give you the push you need. We understand the auto repair industry and can work with you to get a loan that fits your needs. Contact us today to learn more about our financing options and how we can help your business grow.

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