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📅 Last Updated: June 21, 2023
✏️ Written By Priyanka Correia, BComm
🕵️ Fact-Checked by Caitlin Wood
Business Loans Mechanic

As you know, becoming a mechanic and running your own auto shop certainly takes considerable training and financial aid. This is why an affordable and convenient business loan from a reputable lender is such an important asset for Canadian mechanics and garage owners all across the country. Whether you’re looking to upgrade some equipment or move to a better location, the best way to make sure your garage sees a profit is to make sure all your expenses are taken care of and with the right business loan, you’ll be able to do exactly that. 

Best Business Loan Providers for Mechanics 

AmountAPRTerm (months)
SharpShooter Funding1k-300kFee-Based: Starting at 9%12- 60 Learn more
OnDeck5k-300k8% – 29% 6-18Learn more
Lending Loop1k-500k+5.9%3-60Learn more
Thinking CapitalUp to 300k8%-22%6-12 Learn more
Merchant Growth5k-500k-6-18Learn more
BDC100K +6.05% +60Learn more
IOU Financial5K-100k15%+12-18Learn more

Potential Uses For Your Business Loan

In fact, once you secure your business loan, you can use it as capital to start your automotive repair shop, or use it to finance any expense you incur. 

Start or Grow Your Business

A business loan can provide you with the capital you need to purchase or lease a property to offer your services. It can also be used to repair or remodel your workstations, office, bathrooms, or customer waiting area. 

Safety Equipment 

Mechanic and auto repair shops involve dangerous labour work where employees may injure themselves. Investing in quality work gear and safety equipment like gloves, jumpsuits, non-slip/ steel-toe boots, safety goggles, welding masks, can fire extinguishers can help mitigate workplace injuries. 

Mechanic and Auto Repair Equipment 

In order to offer your services, you’ll need proper automotive repair equipment such as standing tool chests, diagnostic equipment, brake lathe, pipe bender, pedestal drill, body repair kit, fluid injection test kit, patch kits, emergency spill kits, creepers, and more. 

Mechanic and Auto Repair Tools and Supplies

In addition to all the equipment, you’ll also need proper tools like air and spring compressors, micrometre, tachometer, spanners, manual/pneumatic wrenches, grinders, flame cutters, hydraulic jacks, and more. You’ll also need to finance basic inventory supplies such as engine parts, nuts/bolts, engine oil, transmission fluid, funnels, rags, freon, fuel injection cleaner, car batteries, hoses, brake pads, and other miscellaneous items. 

Leasehold Improvements

Depending on the property, you may need to make some leasehold improvements. For example, you may need to add on multiple garage ports, wide enough to house any size vehicle. You may also want to install lighting fixtures that best work for your mechanics or lay a steel reinforced floor that will support your hoists and service pits. 

Insurance and Licenses 

To start a business in Canada you’ll need to have all the required business licenses and permits for you and your employees to operate and utilize certain machinery. Moreover, you’ll need to purchase liability, property, and workers compensation insurance to protect yourself in the event of a workplace injury or property damage. 

How to Qualify For a Business Loan

Depending on the lender you choose, you’ll be subject to varying requirements to qualify. However, there are a few common factors lenders use to determine an applicant’s creditworthiness. 

  • Revenue – Many lenders will assess your revenue to measure your ability to repay the loan. Lenders will usually use your business revenue statements and bank statements to evaluate and verify your revenue. 
  • Cash Flow – Your cash flow is another indicator of your ability to repay debt. Lenders typically want to see a strong positive cash flow as a negative cash flow means you’re spending more than your earning. Moreover, a negative cash flow is an indicator that you won’t be able to pay your supplier and lenders. 
  • Time in Business – New businesses are known to have a high failure rate. As such, lenders usually consider your business’s age when examining an applicant.
  • Credit score – In general, lenders will evaluate both your personal and business credit score to determine your creditworthiness. 
  • Assets – If you’re securing your loan with an asset, you’ll need to provide proper documentation to prove its value. You can utilize any business asset such as your equipment, inventory, accounts receivable and more. 
  • Debts – The more debts and liabilities your business has, the more risk you pose as a borrower. 
  • Business Plan – Lenders will often ask for a business plan as a way to gauge your business’s viability and ability to repay the debt. It is a detailed report that shows your lender what your business goals are, how you plan to use the loan and how it will affect your profits. 

Factors to Consider When Applying For a Business Loan

  • Interest Rate – As you very well may know, interest rates are the most important factor when choosing a business loan. It plays a crucial role in determining whether or not you’ll be able to afford the loan. 
  • Term – Don’t be fooled by affordable monthly payments. Some lenders may try to wrap you into a long term deal that provides lower monthly payments, but ultimately you pay more in interest. For example, a $10,000 dollar loan with an interest rate of 7.8% over 2 vs. 3 years leads to $832.67 and $1,247.91 in interest respectively.   
  • Fees – Fees such as origination, administration, application, maintenance, and other charges can easily add to your total cost, making the loan unaffordable. 
  • Loan Amount – While it may be tempting to take out a large loan, it’s crucial you only take out how much you need. Taking on a larger loan will usually result in higher interest and fees. 
  • Eligibility Requirements – As mentioned, each lender has their own set of minimum requirements to qualify for a loan. Before applying, it is important to research these requirements to avoid applying with lenders you won’t qualify with. This in turn will avoid unnecessary credit checks which will negatively affect your credit. 
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Alternative Ways to Finance Your Mechanic and Automotive Repair Business

There are many financing options available to small businesses in Canada. Depending on what you’re looking to finance one option may suit your situation better than the other.

Invoice Factoring

Invoice financing works by selling your pending invoices to a lender for a discount. This form of financing is fast, expensive, and secured as it uses your invoices as security. You can use this financing option to fund any unexpected expenses that come with running a mechanics and automotive repair business.

Merchant Cash Advance

If you accept card payments for your services, then you’ll be able to get a merchant cash advance. It is a financing option that allows you to obtain a lump sum of cash in return for a percentage of your future card sales. It is a fast way to obtain extra funds to cover emergencies and other mechanic shop costs. 

Equipment Loan

As previously mentioned, running a mechanics and auto repair shop require equipment such as diagnostic equipment, safety equipment, and other tools and supplies to operate. However, paying for the equipment outright is costly. That’s where an equipment loan comes in. An equipment loan works just like a business loan expect the equipment you’re purchasing is used to secure the loan. Due to the security it provides, equipment loans are not just easier to qualify for, but you’ll qualify for lower rates. It’s important to note, that most lenders will finance up to 80% of the equipment, meaning you’ll have to pay the other 20% upfront. 

Business Line of Credit

A business line of credit works like a credit card where you can withdraw money up to a certain credit limit. Interest is only paid on the amount used and you’re able to reuse the funds as you pay it back. This form of credit can equip you with the capital you need to pay your suppliers, increase cash flow and a number of other expenses.  

Canada Small Business Financing Program (CSBFP) Loan

The Government of Canada offers a number of programs and resources to help new businesses. The CSBFP is a government-backed loan that you can apply for through any major bank, credit union or financial institution. You can receive up to $1 million and up to $350,000 for equipment and leasehold improvements. 

Check out more government financing options for businesses in Canada

Frequently Asked Questions

Can I get a business loan with poor credit? 

Yes, many alternative lenders in Canada are willing to lend to businesses despite poor credit. These lenders base their approval on other financial aspects of your business including your revenue, monthly sales, time in business, assets, cash flow, debts, and business plan. 

Do I need to provide collateral to get a business loan?

No, you do not need to provide collateral to get a business loan. However, if you choose to secure your loan with collateral, it can increase your ability to qualify, with lower rates. Business assets such as equipment, inventory, accounts receivable, can all be used to secure a business loan. 

Do I need a business plan to get a business loan for my mechanic garage? 

In general, lenders request new and young businesses to provide a business plan. The reason being, new and young businesses lack financial data that is essential in determining a business’s creditworthiness. With a business plan lenders can gauge a business’s viability and ability to repay debt. 

Finance Your Business With Loans Canada

If you’re in the market for a business loan to help make your garage a place that your customers will be happy to bring their vehicles? At Loans Canada we offer loans that will suit your financial requirements better than any bank would. Get affordable interest rates and flexible repayment plans that work with your business. 

Caitlin Wood Priyanka Correia Lisa Rennie Bryan Daly Cris Ravazzano Margaret Johnson Kale Havervold Liz Enriquez Sean Cooper Veronica Ott Corrina Murdoch Chrissy Kapralos

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