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Auto repair shops are among the very few businesses with almost no risk of becoming irrelevant or losing traction. People will always need to get around, which creates a steady stream of demand. You can reap the full benefit of this demand as long as you have enough cash to serve your customers and cover regular business expenses. An easier way to do this is through one of the many types of small business loans available today. Auto repair shops can essentially skip the first step of this process, which is justifying the use of additional business funding. You don’t have to be involved in this industry to imagine the amount of necessary resources exceeding the amount of cash the average auto shop has on hand.

The next step is deciding which business financing tool makes the most sense for your shop’s needs and current cash flow situation. Your decision may very well come down to the best option you can qualify for, but the answer to that question will likely surprise you:

Business Term Loan

You’ve probably heard that SBA Loans are the most advantageous business loans on the market. This may be true, at least in terms of borrowing limits and the repayment structure. Compared to other options, SBA Loans carry the highest borrowing limits, lowest interest rates, and the longest terms. So, why doesn’t everyone take out an SBA Loan? Two reasons: One, SBA Loans are notoriously difficult to qualify for, and two, the application process involves mountains of paperwork and a long waiting period. If you don’t have the time to apply, the ability to provide collateral, or the flawless cash flow the bank is looking for, you’re better off going with the second best option (and that’s a very close second), which is a business term loan.

In the past, banks were the only sources of business term loans, so applicants needed to meet almost the exact same requirements as an SBA Loan. That included having the time for a lengthy application process along with collateral, at least two years in business, and enough working capital to pay off the entire loan yourself in the event of a crisis. In 2019, however, you can access similarly advantageous business term loans from a variety of business financing companies. There’s very little paperwork involved, no collateral required, and dips in revenue due to circumstances like seasonality won’t necessarily prevent you from being approved. Much of the business financing industry would agree that when it comes to business term loans; if you can qualify, go for it.

Equipment Financing

Equipment for servicing cars isn’t getting any cheaper. Some pieces of machinery are so important that you cannot wait until you’ve saved up enough money to acquire them. If you plan on using your additional funding to purchase a single piece of equipment, your most appropriate option is likely equipment financing. This carries similar terms and repayment structure to a business term loan. So, why don’t you just get a business term loan? The application process for equipment financing is much quicker, and it’s significantly easier to qualify. Your credit score and cash flow don’t have to be perfect.

With some financial institutions, the equipment acts as collateral and would be seized if you can’t make payments on time. Other institutions do not have this policy, and it may or may not have an impact on interest rates or terms. Since different pieces of equipment have different impacts on cash flow, it is recommended to work with an institution with flexible or negotiable terms. Companies like United Capital Source, for example, base equipment financing terms on how long it will take for the new equipment to contribute to revenue.

Business Line Of Credit

Auto repair shops are constantly forced to make unexpected purchases, like new car parts for a big but uncommon project. These are the kind of dilemmas that are most effectively solved by a business line of credit. You don’t need as much money as you would get from a business term loan, and you’ll be compensated for the expense in a short time frame. Business lines of credit typically come with a revolving feature, which means the balance replenishes as you make payments. The interest rate would likely be lower than a credit card and, since auto shops are frequently in need of additional cash, they’d save a lot of time by not having to continuously apply for business loans.

As you can see, choosing the right business loan for you basically comes down to functionality and requirements. The institution you work with is a factor as well. If you don’t think you can earn approval from a bank or credit union, you may want to look into companies like United Capital Source. You can start with a smaller amount or credit line and once you’ve paid that back on time, you will most likely qualify for better terms or larger borrowing limits. Odds are, you’re probably going to need multiple rounds of funding as your business grows, so it only makes sense to work with a company that prioritizes long-term partnerships.

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