Business Loans for Auto Repair Shops: 3 Options to Consider

2022-06-16

Minyang Jiang

Keeping an automotive repair business running smoothly sometimes requires more funding than you have available. The nature of your business requires you to have enough cash to stock the right parts, equipment and supplies, which are essential in providing excellent, timely service to your customers.

Your business is filled with challenges. The automotive parts and supply vendors you deal with usually have very limited credit options, with poor terms, which end up being a bad choice for your business and its bottom line. Often, what you must seek is business loans for auto repair shops. This can provide the funding you need to get back on the fast track toward success.

Top Three Loan Options to Consider as an Auto Repair Shop:

Like a car, your automotive repair business needs just the right product to make it run smoothly. Your ideal solution is a loan that is quick and does not demand collateral, excellent credit, or put your success at risk if you experience a temporary slump in business.

Banks

According to huffingtonpost.com, most small businesses like yours either are too new to show satisfactory credit history, or are simply not bringing in enough revenue to meet a bank’s minimum threshold to qualify for a loan. Bank lending guidelines have strict criteria in today’s market and most small businesses do not qualify. This has caused many business owners to seek an alternative lending solution.

If you have insufficient revenue or credit history to meet a bank’s requirements, a commercial loan may not be the best option to seek, according to smallbusiness.chron.com.

Pros:

  • Should you be approved for a loan, the interest rate would be lower than some other loan sources.

Cons:

  • Fixed loan payments that come with a commercial loan can hurt an automotive business. With inevitable sale fluctuations from month-to-month, it may be hard to keep up with set payments.
  • If you need money soon, this is not a viable option. It may take up to 60 days to obtain the loan.
  • The application process is usually very long, asks for extremely detailed information about your business, and requires lengthy financial documentation.
  • The banks want collateral (personal property) in case you default on the loan.
  • Start-up businesses are unlikely to qualify. Banks typically turn down loan applications without at least three years of business financial history.

Small Business Association (SBA) Loan Programs

The SBA is a government agency that connects small business borrowers to one of their trusted lending partners. They give your application more clout because they back a portion of your loan with an SBA guarantee. SBA has several small business loan options available, each with its individual criteria.

Pros:

  • The interest rates are generally low, depending on your credit rating.
  • Because the SBA guarantees your loan, it may be easier to qualify with their lenders than if you approached them on your own.

Cons:

  • The approval process is more in-depth than with other lenders. When you apply you are judged by your credit score, documented business history and they may even look at your business skills and experience.
  • You will be required to turn over a very detailed business plan, which should be well-articulated, and include your marketing plans for the future.
  • All of this takes a lot of time. You may not see any funding for at least 90 days.

Alternative Lender Loans

According to entrepreneur.com, about two-thirds of all small business owners are seeking alternative lenders for their funding needs. Business owners seek this avenue when fast, flexible results are desired. Alternative lenders offer a variety of specialized loan solutions to fit the needs of auto repair business owners who risk rejection from the bank and SBA application process. You can choose from customized options in small business loans and lines of credit.

Pros:

  • Alternative lenders offer a simple one-page application process. Documentation is usually easy, (a few bank statements) and all of this can be done online.
  • Your credit score will not prevent your loan from being approved. When reviewing your application these agencies tend to look at the health of your business and your overall potential.
  • Speed is one of the benefits for you and your business. You get answers and the cash you need faster than with other types of lending options.

Cons:

  • Less focus on an applicant’s credit means the lender is risking more, so the interest rate may be slightly higher than with a bank or the SBA.

Many situations can cause auto repair shops to need immediate access to financing. Whether the need comes from everyday expenses, an emergency situation or a golden opportunity, business owners need reliable funding solutions. If your auto repair business needs funding to fuel its success, you need a flexible, fast solution. To learn more about creative funding options, contact Credibly today!

The Mechanics of Business Loans for Auto Companies

Like a car, your small business needs just the right product to make it all run smoothly. You probably need a loan or some sort of financing that is quick and does not require valuable collateral or excellent credit to obtain; basically, you need a funding solution that is easy to find, install, and able to help you get things moving as soon as possible.

Commercial Bank Loans

According to smallbusiness.chron.com, if you have insufficient revenue or credit history to meet a bank’s requirements, these lenders may not be the best option for you.

The big banks’ lending criteria is usually tough to meet and includes what most small business typically lack; a detailed business plan, excellent credit, lengthy business history and valuable collateral. Fixed loan payments that come with a commercial loan can hurt an automotive business because these businesses usually experience sale fluctuations from one season to the next and even month-to-month.

Pros:

  • Should you be approved for a loan, the interest rate would be lower than some other loan sources.

Cons:

  • If you need money soon, this is not viable option. It may take up to 60 days to obtain the loan.
  • The application process is usually very long, asks for extremely detailed information about your business and requires a lot of financial documentation.
  • The banks want collateral (personal property) to take if you default on the loan. Bank lenders often require personal guarantees from the small business owners.
  • Just starting out? Banks typically turn away requests from businesses without at least three years of financial history.

Business line of credit

A business line of credit is a flexible funding option tailored to your business that allows you access, as needed, to a line of funding. Alternative lenders who offer them often have fast application approval and usually look more at your business potential than your credit score.

Pros:

  • It works sort of like a credit card, but usually with lower interest rates.
  • You have access to funds quickly.
  • It may be easier to obtain depending on the lender.

Cons:

  • There are far less hoops to jump through because the application is simple.
  • Payments are based only on the amount of funding used, not the full line of credit.
  • The interest rates may be good, but not as low as a bank loan might be.

 

Small Business Association (SBA) Loans

The SBA is a government agency that connects your loan application to one of their trusted lending partners. They give your application more clout because they back part of the loan with their own guarantee. The SBA offers several small business loan options, each with its own criteria.

Pros:

  • The interest rates are generally low, depending on your credit rating.
  • Since the SBA guarantees your loan, qualifying with the lenders may be easier than if you approached them on your own

Cons:

  • Your application is still judged by your credit score, proven business history and they even look at the business skills listed on your resume.
  • They want many, many details. You will be required to have a very well-thought-out business plan, well-articulated, and include your marketing plans for the future.
  • You may not see any funding for at least 90 days.