Getting a successful business off the ground takes more than just hard work. Whether you’re starting a new dealership or buying an auto repair shop, having a sound financial footing is crucial to acquiring a new or existing business. 

Many businesses get their start with the help of various financing options. When you need help to finance your automotive business, you can count on the brokerage team at AutoCenter Sales to guide you through the buying process. Start with a no-obligation consultation and fill out our Priority Buyer form for the latest updates on newly available automotive businesses for sale!

Before contacting the nearest lender, consider the following best practices for securing financing for your new business.

Understand Your Financing Needs

Acquiring a new business can take significant amounts of capital, so knowing exactly what’s needed to sustain your automotive business is important

Which of the following applies to your needs?

Real Estate Financing

Owning your own commercial property can be more lucrative than leasing, but purchasing property often requires a sizable upfront investment. 

Several types of loans can be used for this funding, and factors like credit score, down payment, and income level will influence the outcome.

Floorplan Financing

For automotive dealerships, floorplan financing offers an expedient way to generate good inventory without a significant upfront investment. 

This option is an asset-backed revolving line of credit or short-term loan, typically for car dealerships to purchase large ticket items from manufacturers, lenders, and other sources. 

Operations Financing

An open line of credit for day-to-day operations provides financial flexibility for new businesses. 

The immediate focus in on how the company operates and how they streamline improvement for their processes because this will affect the bottom line.

Explore Your Financing Options

When it comes to financing your new automotive business, there are plenty of financing options to choose from. A knowledgeable broker like AutoCenter Sales can help you determine the best path for your business. 

Traditional Commercial Mortgage

Standard commercial mortgages offer the lowest interest rates but with stringent qualifications for borrowers. 

While similar to traditional housing mortgage loans, the loan will be taken out against your commercial property.

Commercial Bridge Loans

This form of short-term financing helps borrowers compete with cash buyers and close quickly on owner-occupied commercial properties. Borrowers typically refinance with a long-term loan towards the end of the bridge loan. 

Interest rates are generally higher for commercial bridge loans and work best for investments, relocations, and individuals with poor credit.

Commercial Hard Money Loans

These loans are similar to commercial bridge loans but with lower qualification requirements offset by higher interest rates. 

Commercial hard money loans utilize capital from private lenders that go to the borrowers and are generally used for purchases or refinancing on commercial properties.

SBA Programs

In recent years, the U.S. Small Business Association (SBA) offered financing pilot programs targeted at auto dealerships and similar small businesses. 

While these programs aren’t currently available, you may be eligible for other programs offered by the SBA, including SBA 7(a) loans and CDC/SBA 504 loans.

What Is an SBA Loan?

If you have struggled to get financing in the past when you want to buy an auto shop or are thinking of venturing into small business loan territory for the first time, you may be wondering what SBA’s loan programs are all about.

The Small Business Administration provides a government-backed guarantee to banks and lenders for the money they lend to qualified candidates. This guarantee protects the lender's interests by promising to pay a portion of the loan back if the business owner defaults on the loan. 

So when a business applies for an SBA loan, it is actually applying for a loan through a bank or authorized SBA lender, structured according to SBA requirements with an SBA guarantee.

SBA loans alleviate some of the risk associated with lending money to business owners and entrepreneurs who may not qualify for traditional loans, opening up lending opportunities to thousands of entrepreneurs, start-ups, growing businesses, minorities, and veterans. 

What Type of SBA Loans Can You Qualify For?

There are several types of loans that you can take advantage of, each developed to suit the needs of your business: 

  • Business acquisitions

  • Working capital

  • Equipment purchases

  • Refinancing existing debt

  • Seasonal working capital

  • Major fixed assets

In addition, SBA can help business owners who need financing to help with disaster recovery. 

Disaster loans – available to homeowners, renters, businesses of all sizes, and private, nonprofit organizations – can be used to repair or replace items that have been damaged or destroyed in a declared disaster, including real estate, personal property, machinery, and equipment, and inventory and business assets.

If you are looking for smaller loan amounts under $50,000 to start an auto shop, consider the Microloan or SBA Express programs. A subset of the 7(a) loan program, SBA Express is designed for businesses with financing needs up to $500,000. 

The proceeds can be used to finance various business activities, and no collateral is required for loans up to $25,000.

Is Your Business Eligible for a Loan?

While each loan has its own specific qualification criteria, talk to your bank or lender about your needs and business profile. Another resource is your local SBA District Office. 

In addition to meeting SBA requirements, lenders will also take into consideration credit factors such as your business cash flow, equity investment, collateral, etc.

How Do You Apply for a Small Business Loan?

While each SBA loan program has its own eligibility criteria and application process, there is some advance preparation that you’ll need to undertake. 

From personal and business financial statements to old tax returns, a loan application checklist details what you’ll need to prepare in advance of your loan application. 

A checklist may include the following:

  • Loan application form

  • Resume

  • Business plan

  • Business credit report

  • Income tax returns

  • Financial statements

  • Accounts receivable/payable

  • Collateral

  • Legal documents

Consider Your Collateral

The vast majority of banks require collateral assets as a way to offset the risks of financing. These assets may include your home and any other personal assets you may own. In many cases, the value of your personal assets can influence the size of your commercial loan. 

Keep in mind there are loans available that don’t require existing collateral. However, these loans often feature higher interest rates.

Buying or Selling an Automotive Business? We Can Help

If you’re ready to take the next step in your life by buying or selling an automotive repair business, contact AutoCenter Sales today. We can help you list your property or find an auto shop that you would like to invest in. Our brokers have the experience and knowledge necessary to assist in any real estate transaction.

To find out more about our services and products or to schedule a consultation, call us at 1-800-874-5793 or send us a message online.