Compare business loans for auto repair shops

What are the best business loan options for auto repair shops?

The type of financing you choose depends on how your company generates revenue and what you’ll use the loan funds for. Since auto repair shops bring in constant revenue from lots of customers, and you may need a loan to purchase, maintain or upgrade your equipment, financing that’s flexible or specialized for tools and machines could be ideal.

Merchant cash advance

A merchant cash advance is a one-time loan that you repay using a percentage of your daily sales. When you’re in a lull but still have regular business, a merchant cash advance can be a helpful way to add working capital.

• Pay a fixed fee (known as a factor rate) ranging from 1.1 to 1.5
• Receive funding within a few days
• Loan amounts range from $500 to $500,000

Equipment financing

When you need to purchase a specialized piece of equipment for your shop, you can look into equipment financing, which is a loan that’s secured by what you’re purchasing.

• Interest rates can be lower than term loans, but range from 5% to 20%
• If you default on your payments, you can lose your equipment

Invoice factoring

Since you likely have a lot of large invoices from customers with payment terms of 30 to 90 days, you can consider invoice factoring to access those funds early. Simply sell your open invoices at a discount, and when your customers make payments, those funds go to the lender rather than to you.

• Receive 70–90% of the invoice up front
• When your customer pays, you’ll receive the rest of your funds less a fee of 1–6%

Canada Small Business Financing Program (CSBFP) Loan

You can apply for a CSBFP loan through a chartered bank, credit union or a caisse populaire. They’re up to 90% backed by the Government of Canada.

• Your business must make under $10 million in gross annual revenue in revenue to be eligible
• Borrow up to $1,000,000 (max $150,000 for lines of credit)
• Registration fee of 2% of the loan amount
• The maximum interest rate is the lender’s prime lending rate + 3% for term loans and the lender’s prime lending rate + 5% for lines of credit

Business line of credit

Similar to a credit card, this revolving line of credit allows you to charge against an approved amount, pay it off and then use it again for other purchases.

• No expiry date
• Borrow $5,000 to $1 million
• Pay 9% to 39.99% interest on the amount you actually use

Business term loans

Both alternative and traditional lenders offer business term loans. You may be interested if you’re looking for a loan that affords you freedom in how you spend it, including using it for multiple types of purchases.

• Fixed repayment terms of up to 10 years
• Borrowing amounts up to $1,250,000, sometimes higher

4 questions to ask when comparing business loans for auto repair shops

Even within the auto repair industry, your needs will vary greatly from a competing mechanic’s shop across town. Here are some questions to ask yourself to choose the right financing for you:

How much do I want to borrow?

Not all options will allow a minimum or maximum amount that meets your needs. Borrowing more than you need can lead to paying unnecessary interest and fees, so it’s important to borrow only what you actually need.

When would I like to repay the loan?

Shorter terms sometimes come with the benefit of a lower overall cost of your loan, but it might not be feasible for shops with a lower cash flow. Take into account how much you’re able to pay back, and plan for any emergencies that may arise.

How much am I willing to spend in fees and charges?

By getting a lower interest rate, you’ll likely have a lower cost overall. Be sure to look at the APR when available, which includes extra fees in the rate. Consider underwriting, document preparation, application, late and early repayment fees when looking into financing plans. Early repayment fees, also known as prepayment fees, can be especially sneaky if you want to cut down on the cost of the loan by paying it off early.

How fast is the approval and funding process?

Some lenders can take weeks to process your application, while others offer same-day funding. So, if your need is urgent—such as replacing a broken lift—you may need to consider alternative lenders as they move quicker than traditional lenders like banks.

How to apply for business loans for auto repair shops

If you’re ready to apply for your loan, follow these steps:

1. Create a business plan

Most lenders ask for a detailed business plan when you apply for business loans for auto repair shops, so creating one is a good place to start. Outline what you plan to do with the loan, how you plan to repay it, your business’s financial history and an overview of your operations.

2. Determine the type of financing you need

After creating your business plan, you should have a better idea of your business’s needs, which can help you choose the right type of financing. For example, if you need to purchase new diagnostic tools, equipment financing may be best for you, but if you want to renovate your shop, a term loan is better.

3. Check your eligibility

You may have to pay a fee or complete a hard credit check (which can impact your credit score) when applying for business loans for auto repair shops, so ensure you’re eligible first. Lenders typically consider your personal and/or business credit history, financial history and years in business. Eligibility requirements from traditional lenders can be stricter, so if you don’t meet them, consider online lenders—just expect to pay a higher interest rate.

4. Compare lenders

Once you know which loans you’re eligible for, you can compare your options and finalize your choice. Consider the different rates and fees, read reviews of each lender and determine whether the monthly payments will fit your budget.

5. Prepare your documents

Most lenders have a list of documents you need to include in your application, such as:

• Proof of income and revenue
• Detailed budget
• Current asset documentation
• Personal documents
• Legal documents (business registration, incorporation documents)
• Personal and business tax returns
• Government-issued ID

6. Apply for the loan

It’s finally time to apply for your loan, which you can typically do online. Make sure you have all your documents with you to make the process quicker.

7. Review the loan terms

If you’re approved, you’ll receive a business loan agreement. Read through it carefully and highlight details like the repayment schedule, fees, interest rate, penalties and collateral. If you agree with everything, sign the agreement and wait for your funding.

Mistakes to avoid when applying for business loans for auto repair shops

Try to avoid these common mistakes when applying for your loan to improve your chances of approval:

• Not having a solid business plan ready to go. So important, we’re mentioning it twice: a detailed business plan can help sell your ability to pay back a loan. Make sure that you’ve got clear, clean, achievable goals and documentation to back up any progress you’ve made.
• Not meeting the minimum time in business requirement. Many lenders require your business to be established for a specified time before considering you for a loan, usually at least one to two years. Make sure that you meet this requirement before applying for financing. If you’re just starting out, consider a startup loan instead.
• Not knowing your exact revenue. Some lenders require that a business make at least $10,000 or more in monthly revenue, so you’ll likely want to scope out if there’s a minimum (or maximum for small business loans) revenue you need to meet before applying. If you’re not sure exactly how much your business makes, it’ll be more difficult to convince a lender to let you borrow money.
• Taking out a larger loan than necessary. It may be tempting to take out a large loan if you’re eligible, but this can lead to financial strain or even bankruptcy if you’re not able to make payments. Try to borrow only what you need, or consider a business line of credit, as you only pay interest on what you use.

7 industry tips to run a successful auto repair shop

Gathered from automotive industry websites and entrepreneur blogs, here are 7 tips to help you run a successful mechanic shop:

1. Identify your audience and market to them

Do you specialize in foreign cars? Domestic? A specific size, region, make or model? Read up on the demographics of people likely to buy those vehicles, and focus your efforts on bringing them in.

2. Make your appointments seamless and predictable

Take the time and resources to invest in scheduling software you can access online from a desktop or mobile device. People are busy, and the ability to schedule an appointment online and on the move—without dealing with a phone call—can be a convenience that pulls customers back, while also saving you and your employees the hassle and time of taking down appointments manually.

3. Hire the best to do the best job

Your reputation hinges on your employees doing great work. Invest in good people who understand what they’re doing and align themselves with your shop’s values.

4. Make your customers feel like a million bucks

Customer retention is important, and a happy customer is one who’s much more likely to return. Provide a ride home if a customer’s car has to stay more than a few hours, a welcoming waiting area and complimentary refreshments, if possible.

5. Encourage reviews

People are much more likely to leave a negative review than a positive one. When a customer appears satisfied with the job you’ve done, point them towards popular review sites. The car repair industry thrives on online reviews.

6. Reward referrals

Marketing through ads isn’t the only way to grow your customer base. Small rewards for referrals can help generate more business for as little as a gift card to a local coffee shop.

7. Hold simple maintenance demonstrations

Share your knowledge with loyal customers and your local community. Small upkeep like refilling wiper fluid, checking tire pressure, changing windshield wipers and checking an engine’s oil may be routine for you, but it could be unfamiliar to your customers. A small, free demonstration can build goodwill and keep customers happy.

Bottom line

Get your mechanic shop on track by choosing the financing option that’s best for your needs and situation. There are a lot of business loans for auto repair shops out there, but you can potentially narrow down your options quickly by knowing how much money you need, why you need the money and what you need to purchase.

To get started, compare your financing options to find the best fit and get ready to make your business even better than your competitors.

Frequently asked questions

• How long does it take to hear back after filling out an application?

  Getting your business loans for auto repair shops approved can take anywhere from a few minutes to a few weeks, depending on the type of financing and the lender. Traditional banks and long-term loans tend to take longer to be approved, whereas something like a merchant cash advance may result in much faster approval.

• How long do applications take to fill out?

  Applications can take anywhere from a few minutes to a few hours to complete. Timing largely depends on the type of loan you're seeking and the lender you're applying with. If you have the necessary documents and information on hand, the application process will run much more smoothly and quickly.

• Can I get a business loan with a low credit score?

  Yes, you'll find lenders that consider applicants with less-than-perfect credit. The loan terms offered, however, can be less than ideal, with much higher interest rates than for those with good credit.

• Will a lender check my personal credit or business credit?

  It depends on the lender and the type of financing you're applying for. If you have business credit, a lender might look at that. However, lenders also tend to be interested in looking at your personal credit.

• What can you do with business loans for auto repair shops?

  Lenders may have specific requirements for what you can use your business loan for, but generally, you can use it to:

  • Renovate or expand your auto repair shop
  • Obtain necessary licences and permits
  • Purchase equipment, software and inventory
  • Hire and train employees
  • Invest in marketing
  • Manage cash flow and payroll, especially during seasonal fluctuations

To make sure you get accurate and helpful information, this guide has been edited by Leanne Escobal as part of our fact-checking process.

Written by

Rebecca Low

Writer

Rebecca Low is a writer for Finder. She has contributed to a range of digital publications, including income.ca, Indeed, and Expatden, writing on topics like personal finance, career development, and travel. See full bio

Co-written by

Anna Serio

Editor

Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full bio

Anna's expertise

Anna has written 57 Finder guides across topics including:

• Personal, business, student and car loans
• Building credit
• Paying off debt