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The Business of Auto Repair: Loans & Financing Options | L3

The Complete Guide to Mechanic Financing

Starting an auto repair shop gives you the chance to enter a lucrative sector while providing a valuable and necessary service to your local community. However, as with any business, the start up cost for auto repair shops can be expensive.

Few small business owners have the funds available to start everything from scratch. Finding the right location, purchasing tools, hiring employees, and ensuring you meet all your jurisdiction’s licensing requirements are just some of the things you’ll have to factor into the start up cost.

Mechanic financing can help get you on your feet, but what does this process look like? Let’s delve into auto repair loans and how you can get one to kick off your new venture.

What are Auto Repair Loans?

Running an auto shop requires dedication and hard work – it’s not a job for the faint of heart. Part of the hard work includes securing and managing finances. Your expenses can vary wildly and it’s not just the startup costs you’ll have to consider, but your ongoing operating costs as well.

Cash flow is one of the biggest issues business owners face, especially when entering down periods throughout the year. A mechanic loan can provide you with a financial safety net and keep your business running through tough times.

Auto repair loans come in many forms. These are lump-sum installment loans with an interest rate and a regular monthly repayment like a vehicle repair loan. In the same way as any other type of business, you’ll need to approach auto repair financing companies, lay out your plans, and discuss your application with a loan professional.

Common Costs of Running an Auto Repair Shop

Auto repair shops that finance typically need to contend with the costs of their facilities, heavy machinery, staff, insurance costs, and more. Let’s discuss the top three costs associated with running a repair shop.


Your equipment is what allows you to do your job. It’s not just the standard tools; it includes heavy machinery and expensive equipment. Air compressors, vehicle lifts, and engine hoists are essential pieces of machinery found in any professional garage.

Auto repair shops also need to think about how vehicles are getting smarter and more tech-focused. More and more consumers are searching for auto repair businesses to diagnose issues using advanced technology.

Regardless of the market you’re targeting, expect to invest thousands of dollars in purchasing the right equipment.


Insurance is another significant expense that can affect your cash flow. Taking out an auto repair loan can preserve your liquidity and ensure you continue to meet your obligations. You’ll need to consider several insurance policies, including public liability, worker’s comp, and business insurance.

Note that your insurance requirements will differ based on which state you’re setting up your business in. Some require greater levels of coverage than others.


One of your most significant ongoing costs will be paying the rent. Unless you have the funds to purchase a building outright, your business will be renting a space.

Shortlisting buildings that have the necessary space and are in the right location is vital at this stage. You’ll need an office, parking spaces for customers, and a place to store vehicles that are currently being worked on.

Rent and the building’s associated property taxes can dent your budget.

Types of Auto Mechanic Financing

Mechanic auto finance options are available to get your business off the ground and provide financial assistance afterwards. Depending on what you need from an auto repair loan, there are several choices to consider.

Remember that it’s wise to show lenders that you’re committing your own money to your business to show dedication. Borrowing less will ultimately mean lower monthly repayments.

So, what types of mechanic financing are available?

Business Line of Credit

A business line of credit is an excellent financing option thanks to its flexibility. It comes with flexible, revolving funds that constantly refresh as you pay back what you borrowed.

Auto repair shop owners often use lines of credit for inventory costs and for bridging between invoices to preserve their cash flow.

Short-Term Business Loan

You’ll also find lenders offering dedicated short-term business loans to auto shops. Terms might range from as little as three months to five years. This type of financing offers more flexibility, but it typically comes with higher interest rates.

Short-term business loans are ideal if you need quick financing to cover any emergency expenses, such as a fire, natural disaster, or a piece of essential equipment breaking down.

Equipment Financing Loans

Equipment financing is designed to support the purchase of essential business equipment. Any tangible asset will qualify under equipment financing.

Your tangible assets could range from a lift to an alignment machine in an auto repair shop. Equipment financing loans are great options whether you’re just getting started or looking to expand.

Traditional Bank Loan

Alternatively, you may choose to approach your bank. Most bank loans will require some form of collateral, such as the business’s tangible assets. These loans can range from two to twenty years, so they’re a more long-term commitment.

If you’ve got a high credit score, you can take advantage of competitive interest rates. Unfortunately, it’s not uncommon for the application process to be slow and have stringent requirements.

The Small Business Administration (SBA) Loan Guarantee Program

The SBA is not a lender, but they work with banks and credit unions via the SBA Loan Guarantee Program. If you qualify, the SBA will essentially guarantee a portion of the loan to convince traditional lenders to approve more loans.

You can qualify for these loans if your auto repair shop is already open and you have a personal credit score of more than 680.

How to Get Mechanic Financing

Applying for auto repair loans follows the same process as other loans. However, proper preparation will streamline your application and prevent headaches along the way. A lack of preparation is the reason many loan applications are delayed or outright rejected.

Follow these steps to get your auto repair loan:

  1. Choose your desired loan amount and compare interest rates and other terms.
  2. Fill in the application form provided by the lender. You’ll usually be asked to include information like business type, current revenue, and time in the industry.
  3. Provide your business’s checking account for inspection.
  4. Communicate with your lender. They may require further information before approving your loan. Most lenders use automated verification systems, so applications often pass initial checks within hours.
  5. Receive your funds. If approved, you’ll likely have the money in your account within a few business days. If rejected, start again with a different lender.

You’ll always have a greater chance of approval if your personal credit score is high. In the absence of an established track record for your business, your personal credit score will act as a substitute.

Tips for Getting Approved for Mechanic Financing

How do you increase your chances of getting your mechanic loan application approved?

Let’s examine some tips and steps you can take that may increase your chances of being approved for a loan for your auto repair business.

Increase Your Monthly Revenue

Loan providers will examine your monthly revenue for two reasons. First, they want to know whether you can comfortably afford the loan repayments. If it’s too low, they won’t offer you the chance to take out a significant loan.

On the other hand, steady growth indicates that your business is likely to stand the test of time. Remember, lenders are looking to reduce their risk.

Multiple recurring revenue streams are another way to reduce lender risk in their eyes. For example, your auto repair shop may have a subscription-based service for regular vehicle servicing. These income streams can enable you to overcome down periods in your business.

Get a Better Credit Score

Your credit score is fundamental to securing a loan for your auto repair shop. Your personal credit score will be what a lender examines when starting your business. On the other hand, your auto repair shop will also have its own credit score if you’ve already incorporated and launched your business.

A low credit score doesn’t mean you won’t get approved for a loan. It does, however, mean paying higher interest rates. Work on building your credit score to secure better loan offers going forward.

Improve Your Cash Flow

Your cash flow is the money you have available to cover your expenses. Also known as liquidity, a business that’s barely paying the bills every month is at risk of failing. A down period, a broken piece of equipment, or an essential employee leaving could all tip that business into the red and force it to grind to a halt.

Paper profits mean nothing until they’re sitting in your bank account. To lenders, businesses with poor cash flow represent a risk. It tells them that the business is either spending beyond its means or the business owner cannot prepare and manage a budget.

Focus on improving your margins and keeping a regular supply of cash to confront anything that hits your auto repair business.

Prepare a Plan

With most traditional loans, lenders will want to know what you’re using the money for and whether you have a growth plan. No lender wants to get stuck chasing repayments from a stagnant or declining business.

Make sure you have a comprehensive business plan and plenty of copies to distribute to specialized business lenders who ask for them.

Apply with Care

Study the lender’s requirements before applying. It makes no sense to apply for a loan your auto repair shop already doesn’t qualify for.

Automated verification systems mean your application will be instantly discarded and not seen by a pair of human eyes. Applying to the right lenders can save you considerable time and effort.

Finance Your Auto Repair Business with L3

Applying for a loan to build your auto repair shop from the ground up can be stressful, but securing the financing you need is key to becoming a fixture in your business community.

Work with L3 Funding to find the right financing sources and get tips on increasing your chances of securing a loan. We are the premier small business resource for dedicated and hard-working entrepreneurial communities.

To learn more about how L3 Funding can help you start off your auto repair shop on the right financial foot, contact us or apply for merchant funding today.