FUNDING FOR Automotive Repair and Maintenance Business
Research says, the U.S. automotive repair and maintenance services market is forecasted to grow at a CAGR of around 3% and reach USD 76.91 billion by 2027 from USD 64.41 billion in 2021 (mordorintelligence.com). In the U.S., the automotive service market is segmented by Vehicle Type (Passenger Cars and Commercial Vehicles), Service Type (Mechanical, Exterior and Structural, and Electrical and Electronics), and Equipment Type (Tires, Seats, Batteries, and Other Equipment Types).
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When it comes to the electrical segment, the market for electrical repair & maintenance services, which includes regular lighting bulb inspections, cleaning of headlights etc., is anticipated to witness a steep growth throughout the forecasted period. However, by 2028, the market for franchise general repair is expected to occupy 5% of the entire market share. The rapid growth of the automotive repair and maintenance service market in the U.S. is fuelled, primarily, by the increasing household incomes and availability of online automotive service aggregators, who help customers to fix appointments with local garages with just the touch of a button. Besides, the COVID-19 pandemic turned out to be a growth initiator for the industry as the recession, brought by the pandemic, reduced the overall automotive vehicle sales and increased the need to maintain the existing fleets. The average age of automobiles in the U.S. is witnessed to be 12.1 years in 2022, which was 11.9 years till 2020. Also, the rise in the average miles driven per vehicle and inflated sales of used cars in the U.S. is backing the industry.
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Technological factors impacting the Industry
Today, with the constant advancement of technology, automotive repair and maintenance service offering companies are extensively using AI-based automated vehicle inspection technology. This technology not only enables companies to complete the entire inspection process within 5 minutes but also ensures a substantial cost reduction. Also, the technological advancements and integration of automation are the primary reason the average age of vehicles is rising.
New vehicles, these days, come with telematics embedded in them. Therefore, auto repair shop owners are rapidly getting updated on the latest technologies and are sourcing the parts needed to deal with the telematics and connectivity of modern vehicles, backed with cutting-edge technology.
Key Industry Trends
Increasing scopes in the electric vehicles segment.
The considerable growth graph of the electric vehicles market is immensely aiding the automotive repair and maintenance service industry, as the rising demand for electric vehicles is creating abundant scopes for OEMs, aftermarket parts and component manufacturers, tire manufacturers, and other players across the industry supply chain. Hence, IC engine vehicle parts and components service-providing companies are getting a chance to expand into electric vehicles, which have become quite accessible these days.
Increasing demand for commercial vehicles.
The demand for commercial vehicles is witnessed to drastically increase in the post-pandemic period. In the U.S., many people are now preferring to purchase pick-up trucks that can transport both cargo and passengers. But these trucks with frequent replacement cycles require more maintenance as these travel longer distances in a relatively shorter time. As most commercial vehicles run on diesel, which cost less than petrol, they require frequent maintenance services, like changing engine oils, brake transmission fluids, brake pads etc. This is another reason behind the steep growth of the industry.
Why need finance?
- To incorporate the most recently devised technology.
- To own and maintain equipment like engine hoists, vehicle lifts, air compressors etc.
- Pay for the not-so-cheap liability coverage insurance premiums, which eventually increase the cost of the services.
- To pay the rent of the operating space or garage.
- To arrange enough spaces for the clients to park their cars.
Merchant Cash Advances(MCAs) for Automotive Repair and Maintenance Business
Merchant Cash Advances are an advance on future receivables with a flexible repayment structure. What makes MCA one of the most convenient financing options for an auto service company is the loan repayment process. A pre-decided percentage is automatically drawn regularly or weekly, on behalf of the lender, from the credit card transactions of the borrower, till the entire amount is recovered.
An MCA is priced based on a factor rate, which is generally between 1.1 and 1.5, depending on the industry type, average monthly credit card sales, the amount required and the trade history of the company applied for MCA. As repayment of the advance is based on future credit/debit card sales, the repayment amount can go up or down depending on the daily sales. The factor rate, which generally ranges between 1.09 and 1.5, is multiplied by the principal to determine the total payable amount.
SIMPLE PROCESS TO APPLY FOR MERCHANT CASH ADVANCE FOR YOUR AUTOMOTIVE BUSINESS
As we mentioned before, the application process is simple.
We will break it down for you step-by-step.
The borrower needs to provide the lenders with social security numbers as well as signatures to get the credit pull authorized.
MCA lenders ask for sales volume by card type, return frequency, processing fees, chargeback history, monthly costs, batch frequency, average transaction size, and processor-imposed reserves. The borrower needs to submit all pages of each bank statement, besides the above-mentioned documents.
After submitting the primary documents, the borrower needs to provide certain additional documents like Articles of Incorporation, K-1 of recent business tax return, business property lease, driver’s license or any other photo ID, voided cheques, recent business tax return, and financial statements.
The underwriters then get in touch with the borrower’s vendors, business property landlord, if any, or the bank holding the mortgage on the business property, to understand if the business has the permission of continuing operating in the same location at least throughout the loan repayment time frame.
The lenders contact the borrowers over calls to review the business information, discuss the use of the advance and assess the borrowers’ willingness to follow through with the contract terms.
Some MCA providers hire inspection firms to perform a site inspection by visiting the borrowers’ location to verify the address, examine inventory and take note of the number of credit card machines available on site.
Finally, the repayment method is decided on.
After getting approval on the application, the borrower gets the funds transferred to his/her business account, within 24 to 48 hours.
- No less than 6 months in business.
- Minimum monthly revenue of $10,000.
Primary Benefits Of MCA
MCAs come with simple application processes and offer quick approvals and fund disbursement.
MCAs come with flexible repayment terms.
MCAs Do Not restrict the usage of the funds.
MCAs do not ask for collateral.
Other Popular Financing Options for Automotive Repair and Maintenance Business
Technically, it is not a loan, but a financing option where a lender buys a company’s unpaid invoices at a discounted rate. The lender gets the discount for providing a fee and the borrower gets the remainder of the balance. Invoice Factoring is lenient about credit score, business history and annual revenue.
Primary Benefits Of Invoice Factoring
It enables business owners to sell their eligible invoices to a factoring company and quickly get 100% of the invoice amount, minus a nominal fee.
It generally comes with a long payment term.
The factor collects payments from the borrowers’ customers.
Business Lines of Credit
The concept of business LOC is quite similar to that of a credit card. The lender sets a credit limit for the borrower, who can multiple draws, from the approved amount, as per the requirement. In the case of business LOC, one needs to pay just the interest and fees on the borrowed amount.
Primary Benefits Of Business Lines of Credit
It usually comes with lower interest rates.
It offers the borrowers quick access to funds.
It is often considered the most easy-to-obtain financing option.