Automotive Repair Shop Financing

Loans for Automotive Repair can be tricky at times, because of the special purpose nature.  Most lenders do not understand how to look at the automotive space and underestimate how needed this industry is.  Auto Repair companies are the backbone of our small business community and as such should be given great options for lending.

When looking for a loan it is important to focus on some key areas the lender will care about.  Here they are:

Character:

The lender wants to see how your operate your business.  Are you showing all the profits you make on your tax returns?  Are you focusing on taking care of the customer and it shows in your reviews online?  Do you run your business with honesty and integrity?  Lenders are very focused on who you are and how it shines in your business. 

Clean:

Do you run a very clean shop, or is it a mess when a lender comes to visit?  Have you taken time to keep up on the maintenance?  Do you make sure people feel safe when they come into your shop?  Are you up to speed on all the latest codes and technology?  Make sure you have inspected your operation to make it would stand the test of an audit.

Cash Flow

Look at your books and see if your numbers look good?  The lender is going to go straight to the tax returns to see If you have cash flow.  What is cash flow?  Simply put they will take your Net Income and add back the Interest Expense, Depreciation/Amortization and possibly Rent if you are replacing it.  They want to see if you can service the debt 1.25 times…here is an example. 

Net Income is 100,000

Depreciation is 15,000

Interest Exp is 10,000

Total Cash flow is 125,000

Payment on new loan is 100,000 a year.  You will take 125,000 divided by 100,000 and the debt service coverage ratio is 1.25 times.  If you fall below that it starts to get a little thin, but can be overcome with good explanations. 

Credit:

When we talk about credit, it is much more than just a fico score.  The lender wants to see if you have had any bankruptcies, foreclosures or short sales.  They want to really know how dedicated you are to stability in making payments.  If, however, you have had some credit gliches, then just be prepared to provide good explanations with supporting information. 

So what will a lender offer for an Automotive Repair facility? 

SBA General Terms:

• Loan to value is ranging from 85 to 90%
• Rates now are ranging from 4.5 to 6%*
• Amortization is 25 years
• Prepayment are step down
• Origination is 1 to 1.5%
• Fees are 2.5 of the loan amount
• Terms are 5, 7, 10 and 25 years fixed
• Reports are Appraisal, Phase I, ALTA Survey and Title. 
• 60 to 70 day close

Conventional Terms:

• Loan to value is ranging from 75 to 80%
• Rates now are ranging from 4.5 to 5.5%*
• Amortization is 25 years
• Prepayment are step down
• Origination is 1 to 1.5%
• Terms are 5, 7 and 10 years fixed
• Reports are Appraisal, Phase I, ALTA Survey and Title. 

*as of 3/26/20. Call for current rates. 480-219-1205