Business Financing for Auto Shops in the UK
A number of challenges threaten the survival of small businesses in the auto maintenance and repair industry. The good news is that help is available: with affordable business financing, even the smallest auto business can thrive. But before you can get financial assistance for your business, there are a few things you need to know:
How does UK business financing for auto shops work?
Business financing for auto shops works just like financing in any other industry; a for-profit company that needs financial assistance chooses, and then applies for, a specific type of financing from a specific lender. The lender in question will analyse the application and, according to its own criteria, either approve or reject it. If approved, the business will receive funding, and then have to repay it according to the terms of the agreement made with the lender.
Sometimes a lender will approve an application but for a smaller amount than applied for; sometimes a lender might ask for additional information before making a final decision. It’s important to note though that each lender works independently, so just because a business is denied financing from one source does not mean it will be unable to get financing elsewhere.
What types of auto shops can get UK business financing?
There are 42,383 vehicle maintenance and repair businesses in the UK, employing 345,600 people and contributing £12.2bn to the economy annually. So it’s no surprise that plenty of financing options exist for auto businesses of all types, regardless of specialty or size. This includes (but is not limited to):
- Paint/body shops
- MOT/safety shops
- Electrical shops
- Fleet shops
- Tire shops
- Independent shops and garages
- Dealerships
- Mobile mechanics
How can auto shops use business financing in the UK?
Auto shops face many challenges, and as such may need financing for a variety of reasons. Currently, the major issues threatening the industry include:
- Rising operational costs, including taxes and energy costs
- Rising cost of spare parts (which have seen a 41.6% increase over the past six years)
- Workforce shortages (and an associated 15% rise in labour costs)
- Decreased demand for repairs due to improved reliability, longer servicing intervals, extended warranties on new cars, and the cost of living crisis
- Increased competition from franchised motor dealers, especially as cars become more complex and require brand-specific tools and expertise
- Economic uncertainty due to Brexit and Budget changes
75% of vehicle repairers report that rising costs are their most significant challenge, yet 54% are attempting to absorb these cost increases themselves, without escalating prices for customers. This puts an increasing amount of pressure on auto shops, and external financing may be the only realistic solution for many businesses’ budgets. Fortunately, financing can be used for almost any business cost, including:
- Equipment purchase/repair/maintenance
- Staffing costs, including wages and training
- Inventory such as lubricants, oils, batteries, tires, etc.
- Investment in technology
- Insurance and licenses
- Utilities, rent and property costs
- Costs associated with business expansion, including property purchase, renovation, hiring, marketing, etc.
- Emergency expenses
- Debt consolidation
- Working capital
What are the different types of UK business financing available to auto shops?
There are many different types of business financing in the UK, most of which can be used for multiple purposes – especially helpful for businesses fighting financial battles on various fronts. Not every business is facing the same battles though; research shows that there is significant regionality in both revenues and costs for auto shops, so choosing the most appropriate form of financing for your business’s specific circumstances and needs is crucial. The below table shows the main characteristics of the five most popular forms of financing in this sector:
| Small business loan | Business line of credit | Equipment loan | Merchant cash advance | Invoice financing | |
| Size | £1,000 – £1m+ | £1,000 – £250,000 | £1,000+ | £3,000 – £300,000 | £1,000 – £500,000 |
| Term | 1 month – 7yrs | Open-ended (though may require renewal) | 3 – 10yrs | Open-ended | 1 – 3 months |
| Costs | – Interest (fixed or variable) – Loan fees | – Interest (only charged on borrowed funds) – Lender fees | – Interest – Loan fees | – Single pre-set cost known as ‘factor rate’ | – Factoring fee – Lender fees |
| Structure | – Loan can be either secured or unsecured – Funds received as a lump sum- Repayments must be made regularly, at a set level | – Revolving, re-usable credit facility – Can be accessed as needed- Can be secured or unsecured – Repayments in line with amount of credit used | – Funds released to cover cost of equipment purchase – Loan typically secured against equipment – Repayments must be made regularly, at a set level | – Funds released as a lump sum- Repayments made as a % of credit card sales, as and when they happen, until full amount repaid- Unsecured | – Funds released as an advance, as new invoices are issued to borrower’s clients – Secured against invoices – Repayments occur when invoices are paid |
| Eligibility | – Credit score – Income – Business history | – Credit score – Income – Business history | – Credit score – Income – Business history | – Credit card income | – Minimum turnover – Business must bill by invoice |
| Pros | – Cost-effective – Can be very large | – Flexible borrowing amounts – Reusable | – Can be cost-effective – Provides immediate access to equipment | – Flexible repayment- Easy repayment (admin managed by credit card processor)- Easy to obtain – Quick to obtain | – Easy to obtain – Quick to obtain – Scalable |
| Cons | – Difficult to obtain – Slow to get – Inflexible repayments | – Can be expensive – Can be difficult to obtain | – Funds are use -specific – Inflexible repayments | – Not accessible by businesses without credit card cash flow | – Requires extra administrative effort for each invoice – If clients do not pay invoices, repayment threatened – Can affect customer relationships |
Please note that the exact terms of any business’s financing are dependent on the business’s characteristics; the values given above are industry averages
Other forms of financing that are also available to auto shops include:
- Business credit cards
- Commercial mortgages
- Start-up loans
- Private investment (peer-to-peer lending, angel investors, venture capital, crowdfunding)
- Government loans
As you might expect, the types of financing listed above are common across industries, so businesses in other fields can access them too. But the relative merits of different types of financing differ depending on each industry’s unique attributes, so the best business financing for pubs and restaurants may differ from the best business financing for retail stores, and differ again for hotels and lodging businesses.
Where does UK business financing for auto shops come from?
There are dozens of companies and entities offering business financing; these fall into several categories:
- High street banks
- Challenger and digital banks
- Other financial services companies
- Private lenders
- Community development institutions
- Government entities
As alluded to above, not every type of financing is available from everywhere. Some lenders offer a range of financing products, while others specialise; in addition, different lenders have different eligibility criteria for borrowers, so not every business will qualify for financing from every lender. All of this must be taken into account when choosing a type of financing and a lender.
How much can an auto shop borrow with UK business financing?
In theory, anything from £1,000 to £500,000 is available via most business financing products – even more with secured loans like mortgages. But the amount any individual business qualifies for depends on:
- The type of financing applied for
- The lender applied to
- The applying business’s financial profile
As such, there is no single limit for how much every business can borrow. Long-established, financially secure businesses with good credit are generally able to borrow more than new businesses and those with poor credit. The average amount borrowed by small businesses in the UK is £25,000.
How much does UK business financing for an auto shop cost?
Every type of financing, and every lender, has slightly different costs. The amount any single business will pay for their financing therefore depends on the specifics of that financing.
Generally, the cost of financing can be broken down into two parts:
- Interest charges; most lenders charge interest on borrowed funds, either at a fixed or variable rate. Rates can vary from just 3% to well over 30%. It is customary for interest to be charged for the entirety of the financing agreement, so the longer the financing term, the more interest is due.
- Loan fees; every lender has their own fees, which can vary in size and application. Common fees include: application fees, loan origination fees, pre-payment fees, late payment fees, closing fees, appraisal fees, and legal fees.
Not all forms of financing work like this though; as mentioned above, merchant cash advances have a single, fixed cost that does not change no matter how long repayment takes. This is advantageous for businesses who do not wish to be penalised if they repay their financing either more quickly or more slowly than anticipated.
How can an auto shop choose the right UK business financing?
Selecting the most appropriate form of financing is imperative, but to do this you must understand your business’s exact financial position and needs. Consider:
- How much you need to borrow
- What you need the money for
- How quickly you need to borrow it
- What you can afford to pay for it
- How quickly you can pay it back
- Your business’s financial profile, including revenue, assets, existing debts and credit
Knowing all of this will steer you towards the best types of financing. Then you can compare products to find one with financing terms that work for you. Remember to look at:
- Borrowing costs
- Length of financing terms
- Available borrowing amounts
- Repayment frequency
- Application process
- Application processing speeds
- Eligibility criteria
Finally, if left with a choice between lenders, you can narrow them down by considering:
- Past customer reviews
- Length of time in business
- Availability of customer service
- Transparency and accountability
- Overall reputation
How does an auto shop get UK business financing?
Almost all forms of business financing are accessible online. Simply navigate to your chosen lender’s website (or a third party site if applicable) to find their secure online application portal.
You’ll need to populate your application with business information and supporting documentation. Not every application requires the same paperwork, as the exact process and requirements depends on the lender and product you choose. You should be prepared to provide one or more of the following:
- Bank statements
- Debit/credit card receipts for several months
- Financial statements, including balance sheet, cash flow statements and income statements
- Tax records
- Business legal documents e.g. articles of incorporation, licenses, etc.
- Personal details for the business owner(s)
- Ownership documentation for business assets
- Existing leases, vendor contracts, and documents for any other existing financial obligations
- Business plan
Once the application is complete, it can be submitted for consideration. It may take anything from a day to several weeks to hear back, depending on the lender and their internal processes.
If your auto business is facing financial challenges, Swiftfund may be able to help. Contact us to speak to one of our experts and find out what we can do for your business.
Quick fire questions
How much can my auto business borrow?
That depends; anything from £1,000 to £750,000 is in theory available via an unsecured loan, but your business’s circumstances will determine how much it can actually borrow.
How much does business financing cost?
That depends on the interest rate and loan fees applicable to the financing you get; different lenders and types of financing cost different amounts.
What’s the average interest rate on a business loan?
Long term secured loans can have interest rates as low as 4%, while unsecured loans typically range from 7-15%. Other forms of borrowing can have even higher rates, up to 30%+.
How quickly can I get financing for my auto shop?
Within a day if you choose the right lender; some guarantee application turnaround in 1-2 business days, while others may take several weeks.
What happens if my auto shop is denied financing?
Just because one lender denies your business for financing, does not mean that another won’t approve you. Plenty of lenders work with borrowers who have been denied funding elsewhere.
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