What You Need to Know
Automotive businesses – like auto repair shops – can come with steep upfront costs. To keep business humming along, you need to buy expensive equipment like shop lifts and air compressors, inventory and meet ongoing licensing and regulatory requirements.
At the same time, your cash flow can be uneven – maybe you’re in your slow season, or maybe you’re waiting to get an invoice paid by a customer or insurance agency.
Financing for your automotive or mechanic shop can help. A line of credit or short-term loan can help you manage your cash flow or invest in new equipment. Learn more about how to use small business loans for your auto repair shop.
When to consider a small business loan for your auto repair shop
Purchasing lifts, air compressors, brake lathes and all the other equipment you use day-to-day in your shop can get expensive quickly. A short-term business loan can be a good fit to shoulder the up-front costs.
Ordering inventory – like replacement parts – can be costly, though it’s a necessary investment to serve your customers. Use financing to order inventory in bulk and take advantage of discounts.
Managing cash flow
Auto repair shops have slow seasons where you may not be filling every bay in your shop to capacity. And when you’re getting paid by auto insurance or invoice, you’re likely to end up with uneven cash flow. A business line of credit can be a good way to meet ongoing expenses while you’re waiting to get paid.
Types of loans available for your auto repair shop
1. A Business Line of Credit: A business line of credit gives you access to flexible, revolving funds when you need them for your shop. With a line of credit, you borrow what you need, pay down the balance, and the funds are replenished so you can use the line again. Most auto repair shop owners will use a line of credit to cover upfront inventory costs or bridge cash flow in between invoices.
2. A Short-Term Business Loan: Many online lenders offer short-term business loans for small businesses like auto repair shops. With terms that range from three months to three years, this type of financing makes it possible for a repair shop to borrow capital and repay it quickly—often making the total dollar cost lower than a longer-term loan. Getting a short-term business loan from an online lender can be much quicker than getting a traditional loan from a bank – typically, the borrower can apply in minutes and get their funds within days. Many auto repair shops will use a short-term business loan to pay for improvements to their shop, purchase inventory, or run marketing or advertising campaigns.
3. Equipment Financing: Equipment financing is another way to finance the purchase of business equipment (besides just using a loan or line of credit). Any tangible asset used in business operations can be considered business equipment. For auto repair shop owners, this can include a shop lift, tire changer, or alignment machines. Many auto repair shops use equipment financing to purchase new equipment for their shop without tying up their existing capital.
4. A Bank Loan: As a business owner, the financing option you’re likely most familiar with is a traditional bank loan. A bank loan typically requires collateral to secure the loan, and the application process tends to take several weeks. The length of the loan can be anywhere from 2-20 years. While the interest rates on a bank loan can be attractive, many auto repair shop owners may find it hard to qualify for a bank loan and find the application process too slow for their cash flow needs.
5. The SBA (Small Business Administration) Loan Guarantee Program: Although the SBA is not a lender and provides financing through participating banks and credit unions (among others), the SBA Loan Guarantee Program will sometimes qualify a borrower who might not otherwise meet the more rigid criteria required by the bank. If your auto repair shop is an established business, with a few years under its belt, and your personal credit score is above 680, this could be an option for your business.
“OnDeck was able to provide us with the money we needed to make our expansion a smooth transition. We were able to purchase new equipment that helped to speed up operation and increase our profit by 20% in that department.”
Douglas and Meghan Garrity
Orland Park, IL
Educational Resources for Auto Repair Shop Owners
3 Cash Flow Challenges You Face as an Auto Repair Shop
You’re not alone if you find it to be a challenge to keep your cash flow steady as an auto repair shop – check out our tips on how to maximize your cash flow.Learn More
Maximizing Marketing Effectiveness with a Small Team
Marketing can be a challenge for many small businesses. Nevertheless, there is one tool that will help maximize marketing effectiveness with a small team.Learn More
Managing Your Finances as a Seasonal Business
Seasonal businesses need to be more strategic when managing their finances to balance their busy and slow seasons – check out our tips on how to plan ahead financially.Learn More
What type of loan makes sense for your business?
Financing options to help you grow your business
If you’ve ever heard the adage, “It takes money to make money,” you must be a small business owner. Fortunately, there are more small business loan options available today than ever before—you just need to know where to look and what to look for. You don’t need to be a financing expert to build a successful business, but you do need to consider all the business loan options available to determine which one is best to meet your business need.
Small Business Loans and Lines of Credit
With online lenders and lines of credit, there are more options available today than a traditional term loan from the bank when you need extra capital to fuel growth or fund other business initiatives.
Loans with a Purpose
Depending upon why you’re borrowing (your loan purpose), there could be an option custom fit to meet your business need. Here are some of the financing options available with specific use cases in mind.
Non-Traditional Financing Options
Sometimes it takes a different approach to meet a business’ financing needs. There are a number of options from micro-loans to funding sources that won’t even be described as a small business loan.
Each industry has specific loan types that may be better suited for your business. Here are some of the most common industries we work with and the financing options available to them.