Injecting funds into any small or large business can be a great help if used properly. For auto shops, in particular, inventory management is a key ingredient to success. Since parts and equipment can be expensive, and revenue usually doesn’t come in until after the inventory is sold and the job is done. Hence it is critical to have the right inventory in stock to maintain a healthy cash flow.
However, if you need additional capital to acquire equipment, but you are short on funds, this can be a challenge for businesses trying to grow. This is where a business loan can be extremely useful. If you are able to borrow funds to invest into inventory that will be sold over the next few months or equipment that will generate additional ROI you can pay off the loan and take full advantage of the busy season for your shop.
To make sure you are making the wise business loan decision, it is important to take a thoughtful approach to how you will leverage a loan.
When Can A Loan Prove Helpful?
To get the most out of your loan, you need to ensure it is designed to drive profit and revenue for your business, rather than just keep it afloat. If you are struggling to make bill payments to pay your staff, borrowing money to do this is usually not recommended.
Consider the useful life of whatever you are purchasing to decide the loan terms that fit your business best. For example, if you are purchasing inventory that you expect to sell in the next 6 months, a short-term loan is a great solution because it will directly result in extra revenue and allow you to get out of the loan quickly. But if you are purchasing something that won’t turn a profit until 12 months later, then a longer-term loan could be a better solution.
Have a defined, pre-determined purpose and utilization of the funds you are asking for. Below are some of the common reasons for auto shop business financing, that can truly help your business:
- Purchasing Inventory
- Expanding your shop’s service area to handle more customers
- Opening an extra location, business expansion
- Purchasing the latest technology and equipment that will reduce costs or add more revenue
- Investing in marketing ahead of a busy season to boost sales
- Tools and equipment upgrades that will make your staff faster and more efficient, driving cost savings.
Of course, there are other reasons you may decide to borrow, however, you need to determine whether taking out a loan will meet the needs of your business or not.
Can A Business Loan Help My Auto Shop?
A business loan can fuel growth, as long as you put the money to good use. This applies significantly to smaller businesses such as an auto shop. Many business owners in Canada have a hard time getting approved for financing if they are not in excellent financial standing. Like most businesses, not having access to capital at the right time can be detrimental. At the same time, just because you can, doesn’t mean you should be taking out a business loan. As mentioned earlier, consider the purpose and utility of the loan very carefully and plan ahead on how you will pay it back without hurting your business.
For small businesses like auto shops, every minute is an opportunity to land a long-term and loyal customer. As long as you plan carefully, a business loan can propel your shop to the next level.
How Do You Get The “Right” Loan?
Working with a lender that understands the ins and outs of your business is necessary. Besides your local bank, you can find online platforms to engage in long-term or short-term loans.
Traditional loan options from the bank are good, however, they are meant for people and businesses in great financial standing. If your credit history is less than stellar, you may have a harder time getting qualified for financing.
Alternative lending institutions in Canada are able to work with customers that are declined by the banks, however, the interest rates on the loan are typically higher. The application process is fast and simple, and if approved, you can usually get the funds in just a matter of days.
If you are thinking about taking out financing for your auto shop, consider the purpose of the loan, how you will use the funds, and repayment terms carefully. If not approached with care, a business loan can bring more long-term stress than benefit.
At OnDeck, we’ve helped many auto shops across Canada, and know the business well. With this understanding, we are able to discuss your options in detail and together figure out the best business financing option for your situation. Give us a call any time and let’s get started!