Auto repair shop loans can provide mechanics and shop owners with cash to offer new services, buyout another shop, or expand the current facility to increase revenue. The best types of auto repair loans are short term loans or a business line of credit because of their minimum qualifications, comparably low fees, and speed of funding.
OnDeck, which sponsored this article, offers auto repair shop loans up to $500k. You can qualify if you’ve been in business for at least 1 year, have a 600+ credit score, and have $100k+ in annual business revenue. They can fund you in as little as 1 day. Get prequalified online in about 10 minutes.
Best Auto Repair Shop Loans
| Short Term Loans | Lump sum working capital financing to grow your auto repair shop business quickly. |
| Business Line of Credit | Shops needing to cover operational costs on a recurring basis. |
| Business Credit Cards | Best for all repair shops because it provides a small credit line to fund daily purchases like inventory. |
| Equipment Loans | To purchase large pieces of equipment like a diagnostic system for new shops or to replace old equipment. |
| SBA Loans | Auto repair shops that want to buy a business or commercial real estate. |
Finding the right financing option is critical for your small business. To help you get up to speed on all your business loan options, we’ve put together this free webinar where we discuss key features and qualifications of the most common business loans.
How We Determined The Best Auto Repair Shop Loans
Auto repair shops continue to see an increase in the amount of work available because the average age of a vehicle fleet is now 17 years and the average car on the road is 11.5 years old. Repair shops are helping these vehicles maintain their functionality and keep them on the road as long as possible. Auto repair shops typically need financing to meet inventory demands and to grow their business, which were the main considerations for this article.
The full criteria analyzed when choosing the best auto repair shop business loan includes:
- Auto repair shop needs
- Loan amounts
- Repayment terms
- Costs
- Speed of funding
- Minimum qualification requirements
Auto repair shops can grow by increasing their marketing efforts, expanding their facility and service capabilities, or by buying out the competition. This means that you’ll likely need a significant amount of financing (more than $50-$100k). The best options will give you an immediate capital boost and give you the breathing room necessary to repay the loan as you grow your business.
Auto repair shops often find it difficult to qualify for a traditional loan because of the unpredictability of the industry, and you’ll likely need the money pretty quick. These reasons combined with the maximum amount you can borrow are why we chose the short term loan as the best financing option. With a short term loan from OnDeck, you can borrow up to $500k and be funded in as little as 1 day.
Short Term Auto Repair Shop Loans
Short term loans offer a lump sum up to $500k you can get access to quickly, within 1-3 days. These loans can carry higher interest rates and short repayment terms with daily or weekly payments due until you’ve paid off the loan. These loans typically require you to repay a set dollar amount regardless of how long you’re in repayment but there aren’t any expensive origination or hidden fees, and the total cost of capital might be lower than a longer term loan.
A short term loan can be a good choiceif you need a fixed amount of working capital to grow your auto shop and repair business. These loans are a great fit to spend on necessary expenses that will improve your overall sales or gross margins. For example, you can use the lump sum payment to lease out a second location due to the growth in your oil change business. It can also be used to hire more mechanics if you need to increase your existing headcount.
Short Term Loan Interest Rates & Fees
The total costs for a short term loan will generally fall into these ranges:
- APR: 30 – 50%
- Prepayment Penalty: None
While many traditional lenders will charge you interest for the time you’re in repayment, these short term lenders actually charge you a fixed dollar amount when you borrow. This means that even if you pay off the loan early you’ll repay the same dollar amount, but there are no prepayment penalties.
Short Term Loan Terms
Short term loans typically carry these terms:
- Loan Amount: Up to $500k
- Repayment Term: 3 – 36 Months
- Repayment Cycle: Weekly
- Time to Funding: 1-3 Days
Short Term Loan Qualifications
To get a short term loan you must meet these minimum qualifications:
- Minimum Credit Score: 600 (check your credit score for free here)
- Minimum Time in Business: 1 Year
- Minimum Annual Business Revenue: $100k
What’s Missing From a Short Term Loan
Short term loans are great for shops needing growth capital, but they can be expensive if you need long term financing to fund large purchases like a new facility. These loans also come in a lump sum, so if you have recurring financing needs you’ll have to reapply every time you require additional funds.
Where to Find Short Term Loans
OnDeck offers short term auto repair shop loans of up to $500k and can fund in as little as 1 day. You can get prequalified by filling out OnDeck’s online application that takes about 10 minutes.
Business Line of Credit for Auto Repair Shops
A business line of credit (LOC) is a revolving line you can repay and use over and over again to fund recurring expenses for your auto repair shop. With a LOC, you won’t have to reapply every time you need additional financing and you’ll only be charged interest for the amount you currently borrow.
A business line of credit (LOC) is a perfect solution to help you order unique and expensive parts that you might not have on hand. For example, while you might have a bunch of brake pads and motor oil in the back room, you might not have one-off needs like a drive shaft one of your customers broke in an accident. This is good for floating expensive parts while you complete the work and wait to get paid.
Business Line of Credit Interest Rates & Fees
A business line of credit will carry these costs:
- APR: 13.99 – 40%
- Prepayment Penalty: None
- Service Fees: Some lenders charge a fee if you don’t use your LOC within a certain timeframe (however OnDeck does not).
With a LOC you only pay interest on the amount of the credit line you use so if you don’t have a need right away for the full amount you’re approved for you don’t have to pay interest on the available credit line you do not use.
LOC Terms
A business LOC will generally carry these terms:
- Loan Amount: Up to $100k
- Repayment Term: 6 Months
- Repayment Cycle: Weekly or Monthly
- Time to Funding: 1 – 3 Days
Small Business Line of Credit Qualifications
In order to get a small business line of credit you’ll need to meet these minimum qualifications:
- Minimum Credit Score: 600 (check your credit score for free here)
- Minimum Time in Business: 1 Year
- Minimum Annual Business Revenue: $100k
You can learn more about the minimum qualifications of a LOC by reading our guide to a business line of credit.
What’s Missing From a Business Line of Credit
A business line of credit is generally good for auto repair shops because you don’t have to keep rarely needed inventory on hand and are prepared financially for the unexpected. However, you typically won’t be approved for more than $100k and the best rates can be difficult to qualify for if you’re not a prime borrower.
Where to Find a Small Business Line of Credit
OnDeck offers a LOC up to $100k where you can get funded in as quick as 1 day. Prime borrowers can qualify for rates as low as 13.99% and you can start the process by filling out their online application, which takes about 10 minutes.
Business Credit Cards for Auto Repair Shops
Business credit cards can help any auto repair shop with their financing needs and should be a part of every business’s financial plan. These cards are fairly easy to qualify for and they can give you a credit line of up to $20-$30k to use however you need. Plus, many business credit cards carry rewards that can help you earn cash back or points. Some even come with a special offer of 0% interest for several months.
Business credit cards are great for auto shops to use to buy known and inexpensive inventory parts or fluids you regularly keep in stock or to buy retail items you’re trying to upsell to your customers. Credit cards are great for ongoing expenses like office supplies, garage insurance, and utilities, too. Having a credit line available when you need it is also great in the event of any unexpected expenses, however a business credit card is for smaller funding needs than a LOC.
Interest Rates & Fees
The costs associated with a business credit card generally fall into these ranges:
- Interest Rate: 12 – 29%, some have 0% introductory offers
- Annual Fee: $0 – $350+
Business Credit Card Terms
The terms of a business credit card are generally:
- Loan Amounts: Up to $100k but typically less than $30k for most businesses
- Repayment Terms: 30 days interest free
- Time to Funding: Instantly – 2 weeks (time it takes to receive your card)
- Initial Rewards: Introductory APR of 0% for 7 – 18 months
- Ongoing Rewards: Cash back or points you can redeem for rewards
Most rewards are tailored to travel or office expenses so a repair shop is best off by getting as much cash back as possible. You could also try to get rewards at the pump and put fuel in the cars you service as an extra customer service feature to drive customer growth.
Business Credit Card Qualifications
The minimum qualifications for a business credit card are:
- Minimum Credit Score: 650+ for best offers (check your credit score for free here)
Your annual business revenue is also factored into your approval but there aren’t any published specific requirements you must meet. Instead, your revenue will likely help determine your approval amount.
What Business Credit Cards are Missing
Business credit cards are a good fit for any auto repair shop, but keep in mind that these cards carry small limits (generally not more than $30k). Carrying a balance on your business credit card can also be expensive unless you’ve qualified for one of the lowest rates.
Where to Find Business Credit Cards
Business credit cards are offered by large credit card companies and banks. You can learn more by reading our guide to the best small business credit cards. You can also check out our article on the best small business credit cards for startup businesses.
Equipment Financing
Equipment financing comes in the form of an equipment loan or lease used to purchase large pieces of equipment with a long shelf life. Typically, the lender uses the equipment you’re purchasing as collateral for the loan. These loans carry low interest rates and repayment terms of around 5 years.
Equipment financing is great for auto repair shops that need to purchase new equipment like a hydraulic unit or replace old equipment like a car lift. Equipment loans won’t be able to help your shop with the majority of your financing needs because you can only use the funds to buy equipment and not for growth capital.
Interest Rates & Fees
Equipment loans generally carry these costs:
- Interest Rates: 6 – 9%
- Prepayment Penalty: None
Equipment Financing Terms
Equipment loans will typically have terms that look like this:
- Loan Amount: $10k – $500k (up to 95% of equipment costs)
- Repayment Terms: 2 – 7 Years (typically 5 years)
Equipment financing can come in the form of a loan or a lease. With a loan you’ll have larger repayments but you’ll own the equipment at the end of your term. Equipment leases are more affordable but you lose the equipment when your term is up unless you pay a large lump sum to then purchase that equipment.
Equipment Financing Qualifications
You can generally qualify for equipment financing if you meet these qualifications:
- Minimum Credit Score: 600 (check your credit score for free here)
- Down Payment: 5%+ (10-20% for owner-operators)
- Collateral: Financed equipment
- Time in Business: 2+ Years (startups with industry experience might qualify)
What Equipment Financing is Missing
Equipment financing is a great fit to buy large equipment but it can’t help you with any of your other financing needs. Most auto repair shops are looking for financing to either grow or overcome short term cash flow gaps so equipment financing will only help a very small amount of borrowers.
Where to Find Equipment Financing
Equipment financing can be found at equipment dealers and traditional lenders like banks. You can learn more about these loans by reading our ultimate guide to equipment loans.
SBA Loans for Auto Repair Shops
SBA loans are guaranteed by the SBA and typically offer the lowest rates and longest repayment terms of any option available. However, these loans take a long time to get funded and require a lot of documentation. With an SBA loan you can borrow up to $5 million and make payments on the loan for up to 10 years.
These loans carry a lot of fees that are rolled up into your loan so they’re typically not a good fit for short term borrowing.For auto repair shops, SBA loans will likely only be the right choice if you need a lot of capital to buy a competitor or to build a new facility for your shop. For example, if you’re expanding to a second location due to the high local demand for smog tests, then an SBA loan can help you get the funding for your building.
Interest Rates & Fees
The costs of an SBA loan will vary by lender but generally will look like this:
- Interest Rate: 5% – 10% (check current SBA loan rates)
- Origination Fee: 0.5 – 3.5%
- Loan Packaging Fee: $2k – $4k
- SBA Guarantee Fee: 3 – 3.5% (Waived if loan amount is under $150k.)
- Prepayment Penalty: None and you can save money by paying it off early by reducing the amount of interest you’ll pay.
The fees associated with an SBA loan can be confusing but you can learn more by reading our article on the SBA guarantee fee.
SBA Loan Terms
Terms for an SBA loan will generally look like this:
- Loan Amount: Up to $5 million
- Repayment Terms: Up to 10 years
- Repayment Cycle: Monthly
- Time to Funding: 30 – 90+ days
SBA loans take a long time (90 days or more) to get funded because of the underwriting requirements and documentation involved. You can learn more about the SBA loan application process by reading our article on how to apply.
SBA Loan Qualifications
To qualify for an SBA loan you’ll need to meet these minimum qualifications:
- Minimum Credit Score: 680 (check your credit score for free here)
- Collateral: Typically required
- Down Payment: 10-20%
- Time in Business: Startup – 2+ years
It’s pretty hard for a business with variable revenue or a new startup repair shop to get qualified. Luckily, we have an article on how to get an SBA startup loan with more information.
What’s Missing With an SBA Loan
SBA loans are great for long term financing to buy a new business or to build a new facility but they can take a long time to get funded. Due to the length of time these loans take to get funded an SBA loan will only work for if you’re needing to fund commercial real estate. If you need working capital then you should look at one of the other options.
Where to Find SBA Loans
You can borrow an SBA loan from many traditional lenders, like your local bank. To find your best options you can read our article on the top 100 SBA lenders.
Keys to Getting Approved for an Auto Repair Shop Loan
A lot of auto repair shops don’t have predictable income because so many of their services rely on vehicles breaking down or needing parts replaced. Even offering more predictable services like oil changes can be difficult to predict revenue because of the amount of competition. It’s important to know how to put your best foot forward in your loan application to maximize your chances at getting approved.
The 3 keys to getting an auto repair shop business loan are:
1. Show Recent Sales and Margin Growth
Lenders will want to see that you’re growing your business. Being able to show 6 months or more of continual sales growth is a great way to show a lender that your business plan is growing and that you could use the capital to grow faster. Auto repair shops should focus on improving sales in the service areas of your business that make more money, like diagnosing and repairing engine problems.
You can use new or more effective marketing efforts to increase your overall sales or you can look at upselling your current clients when they come in for products or services you don’t make a lot of money from.
2. Improve Your Personal Credit
The higher your personal credit is the higher your likelihood of getting approved for a business loan. Getting your personal credit score to meet the minimum qualifications of the loan you’re applying for is just the first step. To get the financing amount you want, chances are you’ll need to significantly surpass the minimum requirements.
You can typically improve your personal credit score by doing these 3 things:
- Verify the accuracy of information on your credit report
- Make all of your credit payments early
- Spend much less than your maximum approved credit
Having bad credit isn’t necessarily a deal breaker with alternative financing like short term business loans. You should take a look at our article on the best credit repair companies to find a partner who can help you improve your financing chances.
3. Improve Your Margins
Many shops struggle because their gross profit just isn’t high enough. This can be due to ineffective operations or inaccurate diagnosis of vehicles. Parts typically only generate around a 20 – 25% margin, while services that involve labor can rake up margins as high as 65%. You need to maximize your gross profit before you apply for a loan.
According to Ty Kiisel, Editor for OnDeck,
“Thin margins can be problematic if the business can’t demonstrate the ability to repay the loan. Any lender will want to confirm the ability of the borrower to make each and every periodic payment throughout the term of the loan. If you can demonstrate an ability to do that, you will improve the odds of success.”
“Thin margins can be problematic if the business can’t demonstrate the ability to repay the loan. Any lender will want to confirm the ability of the borrower to make each and every periodic payment throughout the term of the loan. If you can demonstrate an ability to do that, you will improve the odds of success.”Poorly operated shops can see profit margins dip below 10% for the entire business. It’s difficult for any auto repair business to stay afloat if you can’t improve how much you’re making to more industry standard levels. Showing the strength of your business’s margin will help the lender feel comfortable with your loan.
Bottom Line
Getting approved for an auto repair shop loan can be difficult if your profit margins are low for your industry or if you haven’t seen any significant sales growth recently. The right loan for you will depend on how you plan on spending the money. Short term loans are the best option for the largest amount of auto repair shops due to their loan amounts, minimum qualification requirements, and quick funding capabilities.
You can get a short term auto repair shop loan of up to $500k from OnDeck. To qualify you’ll need to be in business for at least 1 year, have a 600+ credit score, and be bringing in $100k+ in annual business revenue. You can apply online in about 10 minutes and get pre qualified for a loan that could fund in as quick as 1 day.
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