How Beneficial Is Merchant Cash Advance For Auto Repair Businesses?
The increasing disposable income and car-purchasing capacity of the city-residing middle and upper-middle-class has raised vehicle production all over the world. Eventually, this has steadily fueled the auto repair industry. Research says that in the United States, more than a quarter of a million auto repair businesses employ over half a million people. This demonstrates the incredible growth, the auto service industry is currently witnessing. The US automotive repair and maintenance services industry comprises around 162,000 establishments (single-location companies and units of multi-location companies) along with combined annual revenue of about $115 billion (source: firstresearch.com). However, like any other business, an auto repair business comes across various hurdles throughout its gumptious journey. One of the primary challenges is cash restraint. To successfully run an auto repair business, one needs to have a zealous attitude along with considerable fortitude. Nevertheless, when it comes to profitably operate the business, it is not the owner’s zeal, but money, that can pull up the business from the pothole and resume its journey. Therefore, it is always beneficial for auto service companies to consider a financing option.
Among the various necessary operational expenditures, the inevitable ones are:
Technology, these days, is constantly getting updated at a lightning speed and being rapidly adopted and implemented by the urban mass in various regularly used gadgets. Today, people are quite aware of the latest market-ruling technology, and hence, demand the auto repair industry to embrace the most recently devised technology for diagnosing issues. Owning and maintaining equipment like engine hoists, vehicle lifts, air compressors etc., is often financially depleting. This is when the need for external finance is felt.
As the liability coverage insurance premiums are not quite pocket-friendly, the expenses generally end up increasing the cost of the services offered by the auto repair companies. In such a case, auto repair shop financing can cover the insurance cost and eventually decreases the selling price of the services.
The rent of the operating space or garage is often a burden to bear, especially if the workshop is located on or around busy roads, accessed by myriad cars throughout the day. Besides, an auto service company needs to arrange enough spaces for the clients to park their cars. To set up such an infrastructure and maintain it or just expand the existing one, an entrepreneur needs a bulk amount, which is often difficult to arrange.
Auto repair business loans are financial solutions that can be opted by the auto repair company owners to overcome expense-related obstacles that they often come across in course of their entrepreneurial journeys. Of all types of auto repair shop financing options like Business Line of Credit(LOC), equipment financing, Merchant Cash Advance(MCA), business credit cards, SBA loans etc., MCA is generally recommended to the companies, especially those with low credit scores, looking for a hefty amount on an urgent basis. 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.
Qualifications and documents required to get an MCA:
No less than 6 months in business.
Minimum monthly revenue of $10,000.
Profit-loss statement of the last 6 months.
The primary benefits of Merchant Cash Advances are:
Quick access to funds
MCA application doesn’t require elaborate paperwork. After approval, funds are generally disbursed within 24 to 48 hours.
No restriction on usage
The funds can be used to buy equipment, pay the garage rent, hire skilled mechanics and many other purposes. It can also be utilized in opening an outlet at a new location and creating a franchise chain.
Convenience offered even during the lean business seasons
Auto repair shops, like all other businesses, witness seasonal ups and downs. For example, during monsoons and harsh winters, the demand for repair services increases three-fold. During the off-season, when the demand is low, auto repair companies often consider laying off employees to reduce operational costs. To maintain a fixed number of skilled mechanics throughout the year, lumpsum capital is required. This is when MCA comes to play. It makes enough money available to the business owners for meeting the payroll expenses. Besides, unlike traditional bank loans, MCAs come with huge flexibility. In the case of bank loans, the borrower is obligated to make fixed monthly payments irrespective of the revenue generated. Whereas, whereas MCAs allow the borrower to remit a percentage of the revenue generated in a particular month. Therefore, the borrower is allowed to repay a smaller amount during the low-income season and a larger amount when the demand is at its peak. The convenience and flexibility offered by MCAs make them an ideal financing option for auto repair businesses.