Most auto shops need to take out a loan from time to time. Unfortunately, it’s often easier said than done.
We want to help you understand the types of loans that are available to auto body shops, mechanics, and other auto repair businesses. Understanding the different types of auto repair financing is essential to getting a small business loan for your auto repair shop.
Furthermore, we’ll touch on the minimum qualifications you’ll need and some potential complications you may encounter during the loan application process.
Why Do Auto Shops Take Out Loans?
Auto shops take out loans for all kinds of reasons. When business is booming, a loan may be required to expand the place or to relocate to a better one. If it’s floundering, a loan can help finance new and improved marketing efforts. As technology evolves, it’s occasionally necessary to upgrade tools and equipment. This requires a pretty sizable investment, and auto shops don’t often have enough cash.
Further, they must keep the cash they have to protect their bottom line. Auto shops must also continually invest in training their techs, which sometimes necessitates a loan.
Understanding Auto Shop Loans
As an auto shop owner, you may be confused about which type of loan to take out. Whatever you do, don’t base your decision solely on the interest rate. Repayment terms matter too, so it pays to know the most popular loans sought by auto repair shops. Without question, the gold standard is the SBA loan.
However, requirements are daunting, and the process takes a long time. Credit card advances are good for quick cash infusions but tend to carry exorbitant interest rates. Equipment loans are ideal when new tools and equipment are needed. Still, most auto shops opt for traditional business loans from small banks.
Many auto shops struggle to obtain financing. If this sounds familiar, it’s probably because your shop seems like too much of a risk for most lenders. For one thing, banks typically consider auto shops to be special purpose facilities, and they aren’t fond of lending to them.
The main issue is if, say, an especially gifted mechanic quits, his clients may follow him. Business could suffer, and that is too precarious for many banks. Also, auto shops aren’t easily convertible. If the bank ends up owning the place, they could have a hard time selling it for this reason. Further, auto shops are usually small businesses, and many haven’t been open long enough to qualify for financing.
Qualifying for Auto Shop Funding
To qualify for a business loan, your auto shop should have been open for at least six months to one year. You must be able to back up your stated cash flow from operations with bank statements and other documentation. More specific requirements will apply depending on the type of loan that’s being sought.
The bottom line is, if you need a loan, you can probably get one. There are lots of loan products out there, so this isn’t something you should rush into. By taking your time and considering various options, you’ll more easily end up with a loan that suits your needs.