auto repair

Best Auto Repair Business Loans for 2021

Auto repair businesses will likely never run out of work as there will always be cars in need of fixing. If you have the right qualifications, you can set up an auto repair shop and get your share in the auto repair industry.In this guide, our experts will outline the top auto repair business loans available in 2021.

Financially Reviewed by Thomas J. Brock

At a glance With car accidents and mechanical failures happening daily, there is a huge demand for auto repair companies. However, you will likely need an effective business plan and the finances to meet your objectives. Our article will help you choose the best auto repair business lender, so you can embark on your new enterprise with security.

Introduction

If you scour the internet today, you’ll see numerous financial institutions offering small business loans for all business types. It doesn’t matter what field you’re in, there is sure to be a loan out there that fits the requirements of your business. However, approaching an established financial institution like a bank, can result in high-interest rates, long payment periods, and unsuitable terms and conditions.

Industry-specific loans are generally a better route to take, as they target your specific business needs without demanding too much. The industry-specific loan type you chose will vary according to the goals of your auto repair business and your business’s potential return on investment. Let’s look at the best lenders to approach for auto repair business loans.

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Best Auto Repair Business Loans - A Quick Overview

Finding the right auto repair business loan can be daunting. What makes it even more confusing is that there are so many lenders looking to throw cash at any business with the right business plan. But rest assured, our experts are here to shed light on the best loans for this industry. Here’s a summary overview of the top loans for auto repair businesses. 

Financing Need

Best Loan Type

Loan Features 

Recommended Lender

Initial working capital

SBA loan

  • Amount: Up to $5 mil
  • Term: Up to 25 years
  • Interest: From 6% and up
  • Time to get the loan: up to 2 weeks

StreetShares

Business expansion

Term loans

Standard Short-Term Loan Features:


  • Amount: Up to $250,000
  • Term: Up to 18 months
  • Interest: From 14%
  • Time to get the loan: 24 hours

Standard Medium-Term Loan Features:


  • Amount: Up to $500,000
  • Term: 2 to 5 years
  • Interest: From 7% to 30%
  • Time to get the loan:2 to 3 weeks

OnDeck

Equipment

Equipment financing

  • Amount: 100% value of equipment
  • Term: Up to 6 years
  • Interest: Between 4% and 40%
  • Time to get the loan: up to 48 hours 

National Funding

Daily Operations

Business line of credit

  • Amount: Up to $500,000
  • Term: Up to 18 months
  • Interest: Between 7% and 25%
  • Time to get the loan: up to 24 hours

BlueVine

Purchase Inventory

Invoice Factoring

  • Amount: Up to 100% of the invoice value
  • Term: When the client pays
  • Factor fee: 1% - 3%
  • Time to get the loan: Up to 24 hours

Fundera

Fill out inventory orders, hire skilled workers, invest in marketing, invest in new technology

Merchant Cash Advance

  • Amount: Up to $500,000
  • Term: No set terms
  • Interest: One-time factor rate
  • Time to get the loan: Get approved in 24 hours

Fora Financial

Best Auto Repair Business Loans Explained

Let’s now take a deeper look at the top auto repair business loans listed in the table above. We will also provide you with insight into our recommended lenders.

1. StreetShares - Best for SBA Loan

Small Business Administration (SBA) loans have government support, guaranteeing 85% of the funds. SBA loans help small businesses operating in specific industries where there’s a high demand for services. However, there are only a few lenders who are approved to distribute government grants.

SBA loans are ideal for the initial capital outlay needed to open your auto repair business. An SBA loan will help you cover most of your expenses for the first year and obtain the workspace and workforce that you'll need. You’ll be approved for this financing solution if you can show how much profit you will make from your auto repair business services.

StreetShares is an approved SBA lender that covers industries including the auto repair sector. StreetShares even accepts businesses that don’t anticipate a high return on investment for the first year. The lender also rewards clients for loyal repayments.

2. OnDeck - Best for Term Loans

Short to medium-term loans are a good option if you don’t qualify for an SBA loan. Short-term loans have a repayment period of up to 18 months, while medium-term loans have a repayment period as long as five years. The term loan you select will vary according to the objectives of your business plan, and how quickly you expect your business to make a profit.

A term loan can also help you expand your business. You may, for example, wish to open another site or purchase more equipment. You may also want to increase your workforce for faster repair turnaround times. Term loans are ideal for businesses who wish to expand further because once you are an established business you can use your track record to secure this type of loan.

OnDeck offers several financing solutions, but they are exceptional when it comes to short-term loans. OnDeck is forgiving if you have a bad credit score and they also have more lenient approval requirements, in comparison to their competitors. They also boast a helpful customer service resource. 

ondeck

3. National Funding - Best for Equipment Financing

Equipment financing is essential for any auto repair business. This loan type will help you obtain the vehicles, machines, and tools you need to perform the services your customers expect. If you’re lucky, you’ll find a lender that’s willing to pay for the entire value of the equipment you need. However, you can expect high interest rates if you don’t have much experience in your sector.

Equipment loans are the backbone of the auto repair business. If you only need funds to purchase assets and tools, there’s no need to look at other loan options. Equipment financing is also an ideal choice if you want to save your capital and operating budgets for the year ahead.

National Funding provides equipment financing for small businesses in the auto repair business, which may include obtaining inventory items and adding marketing campaigns. National Funding is happy for you to use the funds to buy new equipment, however, you will need to show how your auto repair business will be successful.  

national funding

4. BlueVine - Best for Business Line of Credit

When you need revolving funds to cover your daily operations, a business line of credit is an excellent solution. You have the option of drawing on as much money as you need, and you will only need to pay for what you owe on a monthly basis - over the repayment period. In short, a business line of credit will give you fast access to funds.

Auto repair businesses spend money on inventory items daily. Whether you suddenly need to buy new brake pads for a Toyota Supra, replace a flywheel, or your wheel alignment machine fails, a business line of credit may be your best option. If you can’t wait for loan approval or you have used up your last operating funds, a business line of credit is ideal. As the money from this loan will tie you over until you receive the income you need to repay the loan.

Out of all the lenders available for this loan type, we recommend BlueVine. BlueVine has an online portal that lets you view what you owe and manage your payments. It also grants you quick access to funds as and when you need them.

bluevine

5. Fundera - Best for Invoice Factoring

Invoice factoring works well when you have numerous clients that owe you money. With invoice factoring, the lender buys your invoices from you. However, you may need to prove that your clients are reliable and have a history of paying your invoices. It also helps if you have contracts in place that stipulate 30- to 45-day payment terms.

When their vehicles suddenly break down, some clients don’t have the cash on hand to pay you immediately. You can set up an agreement for them to pay at the end of the month. You can then rely on the lender to cover the costs for you in the interim period. In this way, you will always have funds available for inventory purchases.


Fundera has several loan solutions available for auto shop owners, with invoice factoring being at the top of the list. Even if you’re a startup company or have a bad track record, Fundera will help you get back on track in relation to your financial health.

6. Fora Financial - Best for Merchant Cash Advance

If you need finances fast to upgrade equipment or add new equipment to meet demands Fora Financial is highly recommended for your auto repair business. This is also a great way to keep the cash flow of your business healthy and stay on top of expenses.

A merchant cash advance can help if you need to hire more skilled workers to expand your current service base to a demanding market. This is an ideal type of loan to use for the payroll or invest in marketing strategies.

You can get approved for this type of loan in only 24 hours and you need no collateral to get approved and have the money available quickly. There are no set terms for paying back the loan but there are some benefits for early-down payment of the loan.

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How Much Does it Cost to Open an Auto Repair Business?

Before you can even begin to calculate the possible costs involved with opening an auto repair business, you’ll need to prepare a detailed business plan. Factors you’ll need to include in your plan are as follows: initial startup expenses, short and long-term objectives, the potential target market, and the expected period to break even. You also need to consider some abstract costs, such as daily utility bills, equipment repairs and replacement, and investment in new technology.

While you might be able to plan for the above expenses, there are also ongoing expenses to consider. For instance, you’ll need to cover labor costs, rent for the space you’re working in, and insurance. These overhead costs can be about $25,000 per month if not managed properly. If you only look at your startup costs, you might need between $50,000 to $75,000 depending on the scale of your business. 

Here is a breakdown of some of the costs you should consider: 

  • Business license: Up to $100
  • ASE certifications: Up to $80 depending on the class
  • Mechanic’s hydraulic lift: $4,000 per machine
  • Diagnostic machine: Up to $10,000 per device
  • Shop rental fees: Up to $15,000 per month
  • Insurance: $4,000 annually
  • Mechanic’s tool set: $15,000
  • Labor costs: About $20,000 per month

auto repair

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How to Start an Auto Repair Shop in 7 Simple Steps

Before launching, you’ll need to create a business plan, open a bank account, secure funding, comply with requirements, and create a marketing strategy.

Step 1: Create Your Auto Repair Shop Business Plan

Before opening any business, make sure to have a well-thought-out business plan. This forces you to think strategically. 

Your business plan should include:

  • Executive summary (legal name, address, owners, purpose, business goal, corporate values)
  • Product and services
  • Vision and mission statement
  • Business structure (job roles and responsibilities)
  • Market analysis (market trends, target market, competitive advantages)
  • Sales and marketing strategy (sales forecast, pricing, advertising)
  • Financials (budget, income/expense forecasting)

Step 2: Obtain an Auto Repair Business Loan

Unless you have saved up the money, you’ll need a loan to open an auto repair shop. You could apply for a bank loan, but the application process is complicated and requires at least one meeting with loan officers. It can take months before you receive the money. Alternatively, consider one of the options

Step 3: Form A Legal Entity And Register For Taxes

It’s worthwhile to invest in an accountant or business attorney’s service to help you choose the legal status that’ll be most favorable to your financial goals. There are pros and cons to each kind of legal entity that’s available. Here are the most common structures:

  • Sole Proprietorship (profits and losses are included on your personal tax return)
  • General, Limited or Limited Liability Partnership
  • Limited Liability Company (LLC)
  • Corporation

Your business needs to be registered with local, state, and federal government offices. If you intend to have employees, you’ll need to apply for an IRS employer ID number.

Step 4: Open A Bank Account, Get A Business Card And Set Up Accounting

The next step is to open a business account with a bank in your area. This’ll serve as the depository for your startup business loan and all future revenues that come in from the business. It’s essential to keep a solid separation between your business and your personal finances. Apply for a business credit card to make purchases for your business or pay the bills until the cash starts flowing in.

Money management is critical if you’re to survive, especially during the first few years. Accounting software can help you track income and expenses, track accounts receivable and payable, manage your payroll, and prepare financials for tax reporting. Accounting software will help you quickly assess progress toward your financial goals.

Step 5: Get Permits And Licenses

Once you have funding in place, the next step is to obtain the necessary permits and licenses to operate your business. Every state has different licensing requirements. Begin by checking with your local motor vehicle agency to help determine the type of license required to start an auto repair shop.

Step 6: Auto Shop Insurance

Before being approved for a license, you’ll need to purchase liability insurance. States typically require insurance coverage between $50,000 to $300,000, depending on your circumstances. Liability insurance protects you and your financial health. Your local motor vehicle agency can also tell you how much insurance coverage your business will need.

Step 7: Marketing And Advertising Your Auto Repair Business

You have your location, licenses, permits, and financing. Now you need customers. To establish a strong foundation for long-term success, you’ll need to build brand loyalty. So how do you get the word out that you’re in business?

Set your business up on Google My Business and be sure to use an accurate map. Take advantage of social media platforms to help advertise your business. You can start by creating and posting engaging videos about your business. 

Create a website that includes a blog where you’ll post informative articles about auto repair and safety. Offer coupons and exclusive deals. To help encourage repeat customers, consider loyalty programs.

How to Choose the Best Auto Repair Business Loans

A key factor to consider when choosing an auto repair business loan is how quickly you will be able to access your funds. This is critical as there may be times when you urgently need to buy new stock and equipment. Waiting on a 24-hour approval period could have a devastating effect on your business and could cause you to lose clients.

You should check to see that the loan amount, interest rate, and repayment period match the objectives of your auto repair business. Remember, each financing solution serves a specific purpose, and you don’t want to waste your capital budget on operating expenses. Furthermore, don’t let lenders offer you more money than you need, as this will affect your return on your investment.

Some lenders have specific requirements for approval, so ensure that you meet these requirements before applying for a particular loan. If a lender stipulates that you can only buy from specific vendors, make 100% sure that you’re able to fulfill this obligation before you commit.

See Our Additional Guides on Industry-Specific Loans

The Bottom Line

The right lender can help you make the right decisions regarding the financial needs of your auto repair business. While you can obtain a general small business loan, it’s better if you aim for industry-specific funding to meet all your business requirements. Now that this guide has pointed you in the right direction, all you need to do is find the loan and lender that best suits your auto repair business needs.