Spring and summer are the busiest times of the year for most automotive repair businesses. As the winter approaches, now is a good time for auto shops to take care of those items on their to-do lists, just as any good car owner would do for their car’s maintenance. If garage equipment is deteriorating or needing an upgrade, auto-equipment financing may be the right avenue for auto repair shops to repair and replace equipment.
What is auto repair equipment financing?
This type of loan works like a car loan. Lenders provide financing specifically for equipment businesses need to remain profitable. The lender secures these loans by placing a lien on the equipment. As long as the borrower makes timely repayments, the borrower can keep the equipment. Once the auto repair shop pays off the lender, the shop owns the equipment.
A key distinction between most small business loans and auto repair financing is that auto equipment financing is secured. Unsecured loans carry higher interest and may not be readily available to those with poor credit.
Equipment Financing is available to repair or replace:
- Diagnostic equipment
- Frame racks
- Tire replacement machines
- Tow trucks
- Any equipment used to perform maintenance or automotive repair.
5 tips when considering financing auto repair equipment
- Available cash: Obtaining a loan targeted to equipment enables an auto shop to allocate cash to other parts of the business, like payroll or marketing.
- Tax breaks: Businesses can deduct up to $500,000 on qualified equipment purchases on their U.S. income tax returns. They can also deduct the interest paid for loans on most types of equipment. Always consult your tax professional regarding tax breaks.
- Faster approval: The application is faster than traditional loans and doesn’t require a pile of documents. Approval usually only takes days.
- How to qualify: Higher credit scores, longer times in business, and higher sales provide applicants access to more lending options and better terms and rates. For those without these advantages, online lenders such as ROK Financial are the best option. Online lenders don’t typically require high credit scores and may even provide financing to startups.
- Know your financing options
While equipment loans are a great option for auto repair businesses in need of equipment, some auto shops may find other loan types that are more feasible for their operations.
- Small Business Loans: Small business loans, like all other standard loans, may not be as easily available to those with poor credit, but they do have the best rates and terms. The Small Business Administration is a major lender and offers several types of loans, including equipment loans. While SBA loans have great rates and terms, SBA loan applications are lengthy, require extensive supporting documentation, and approval can take weeks. Learn more about the SBA loan process.
- Business Line of credit: Unlike a traditional small business loan, a line of credit provides a business to borrow smaller amounts if the maximum amount is not needed. Some business lines of credit return or revolve to the maximum limit, usually monthly, once the borrower repays debt. Flexibility is the main advantage of this option, but the downside is that these loans carry higher interest rates than traditional loans. Borrowers will find better rates at banks, but banks won’t lend to anyone with bad credit. Online lenders provide business lines of credit for those with bad credit though.
- Accounts receivable financing: Businesses can use their outstanding invoices to obtain financing. Businesses can either sell their AR to lenders for up to 90% of their value or use them as collateral for a loan. AR Financing acts a quick source of funding, but interest rates are higher than most other loans.
With so many financing options available to auto repair businesses, speaking with a qualified advisor can help owners make the best decision for their shops. Speak to a ROK Financial Advisor to discuss your financing needs.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.