Why a mechanic may need a business loan
One of the biggest challenges for any small business owner or tradesman – and mechanics are no exception – is cash flow.
Income can fluctuate for many reasons and customers often fail to pay on time, especially if you deal mostly with other businesses rather than private individuals.
But bills have to be paid as they fall due, or your mechanical business could join the thousands of SMEs that fail each year in Australia.
A small business loan can help you boost your working capital so that you can cover ongoing expenses like tax, public liability insurance, wages for your staff, utilities, and rent or mortgage payments on your workshop.
It can also give you access to the funds you need to buy service items, spare parts and consumables, and to keep yourself and your team up to date with best practice and up to speed on the latest models, techniques and equipment.
If you’re just getting started, or the time has come to upgrade your facilities or expand your operations, a business loan can help you buy the diagnostic equipment and tools you need, to move to a larger workshop, or to take on more technicians.
What are the requirements for getting a business loan?
Getting a business loan can be easier than you think.
While you can still expect to be knocked back by the big banks unless you have a solid trading history, a top-rate credit rating and collateral to offer, there are plenty of alternative lenders out there willing to offer business loans to mechanics.
Each lender will have their own criteria when it comes to things like credit rating, how long you’ve been in business, and how high your turnover is.
If you’re higher risk (e.g. if your credit score is low) you may still be able to get a business loan, although you can expect to pay a higher rate of interest to compensate for that risk.
The most important factor ALL lenders will look at is your capacity.
Lenders need to know that you will have enough cash – after all your expenses – to cover your loan repayments.
How to apply for a business loan
If you are applying to an alternative lender for a business loan, the process is usually quick and easy:
1Create a business case to check how much you can afford to borrow.
2Prepare your supporting documents – expect to be asked for:
3Choose your lender and loan product – be sure to shop around, because costs, terms and conditions vary. Be sure to find out about hidden fees and compare all the costs of each product, not just the interest or factor rate.
4Complete a simple online application form and upload your supporting documents. Most lenders will respond within days or even hours. Some will even give an on-the-spot decision.
Grow your automotive service businessSee if you qualify
What options are available to mechanical businesses?
There are several types of small business loans you could consider, to support or grow your mechanical business, whether it be in cars, vans & utes, trucks, motorcycles or plant.
Unsecured small business loan
A short-term option, unsecured business loans are usually for between 3 months and 2 years.
You can use the funds for any purpose. Many lenders will let you set a repayment schedule to suit your trading patterns.
A specific-purpose business loan secured on the equipment you are buying, such as workshop equipment and tools.
The term will often be tied to the lifespan of the equipment. You will not be able to sell or upgrade the equipment until you have repaid the equipment finance.
There are several types of business car finance you can use to buy your work vehicles, including car loans, hire purchasing and leasing.
While your work vehicles are under finance you will not be able to sell or upgrade them.
Business line of credit
A business line of credit is similar to an overdraft facility, giving you access to cash up to an agreed limit, often with the right to draw, repay and redraw funds as you need them.
You only pay interest on what you borrow, but there are often set up and admin fees.
Business credit card
Business credit cards are great for covering day-to-day expenses and making purchases, but unless you clear the balance each month the cost can be extremely high.
Before entering in to any business loan agreement, be sure to seek professional advice. It’s also important to ensure you understand all of the costs (including all fees). You can get a head start by using our business loan calculator.