Business owners looking to start an auto repair business can create a successful enterprise if they understand the industry and how to run a small business. Opening an auto mechanic shop requires industry expertise and small business know-how — all of which is possible to learn.
In this Nav article, we cover what the auto repair industry looks like today, the challenges of opening an auto repair shop and how to handle them, and the steps to take when applying for auto shop financing.
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Current state and outlook of the auto repair industry
The outlook for the auto repair industry is very positive — it’s expected to grow by over $93 billion from 2022 to 2027. There’s an increasing demand for auto repair shops because there are more drivers on the road than ever before. All these additional vehicles will need repairs from auto body shops.
Many customers prefer to rely on local businesses for oil changes or tire services as opposed to dealerships because of the lower costs and better accessibility. However, there are likely going to be issues with small repair shops getting the information they need from automakers to repair electric vehicles. It’s worth keeping an eye on the proposed laws in the coming years if you’re planning to open an auto repair shop, but either way, the demand for combustion engine repair will still be there for the foreseeable future.
Why auto repair is a lucrative business
Almost 92% of U.S. households own one vehicle, and 22% have three or more vehicles. That means there are a lot of vehicles in the country that need repairs. With the growth that is expected to happen in the auto repair industry, it’s a secure industry to enter. It’s a good idea to add any necessary technology to be able to repair hybrid vehicles to maintain your competitive advantage.
Opening an auto repair business can be a lucrative endeavor, but like any small business, it doesn’t come without challenges, which we discuss below.
Challenges to building an auto repair shop
Auto repair shop owners face challenges, like any small business. Here are the issues you’re most likely to encounter.
Having limited access to funding
Starting an auto repair business can be expensive, and many people may not have enough money to cover the startup and operating costs from their personal assets. Lenders offer small business loans to qualifying business owners to help them increase their working capital.
Qualifying for a business loan depends on factors like your time in business and your credit history. Learn how to establish business credit in this guide from Nav.
Dealing with limited experience
Starting a business can be challenging, especially for those without experience in the industry or in running a business. Running an auto mechanic shop requires knowledge of the industry or the ability to hire trained staff. And starting a business requires a lot of time and planning.
Luckily, there are many resources small business owners can tap into, including Nav. For example, learn how to decide whether you should establish your business as a sole proprietorship or limited liability company (LLC) in this guide from Nav.
Choosing a suitable location
It can be difficult to find a shop location that’s easily accessible, has enough space, is in a suitable area, and is affordable. You’ll need to be able to perform car repairs, park cars, and store parts. Also, the shop will need to be in an area that has enough customers to make it a viable business.
Attracting customers
With so many auto repair businesses out there, it can be difficult to attract and retain customers. Social media and a good website can be a big help with this. You can post updates, information about services, hours, and more on social media and encourage customers to leave reviews. This can help draw in new customers.
Hiring employees
It’s essential that you find skilled and reliable employees to manage your new customers, but it can be a challenge to get the right fit. Training new employees takes up time and costs money, but it’s worth it to have the help you need to grow your business.
Meeting legal requirements
There are many legal requirements to start and operate an auto repair business, and failure to comply with them can result in fines or legal issues. You’ll need to obtain the appropriate local and state licenses and permits to make sure you’re operating compliantly.
Staying up to date with technology
As technology advances, it’s important for auto repair businesses to stay current with new tools and equipment to remain competitive. This is especially important as more drivers switch to hybrid or electric vehicles, even for auto body repair shops.
Managing cash flow
Cash flow is one of the main challenges for new businesses, especially in the beginning when revenue may be limited. It’s important to budget and manage cash flow carefully to avoid financial issues. Nav’s Cash Flow Tool can help you track and manage the cash flow for your business needs.
Building a reputation
Building a positive reputation in the community takes time and effort, and negative reviews or experiences can harm the business. It’s important to manage and respond to negative reviews in order to reassure potential customers that you value customer service.
Keeping up with industry trends
The auto repair industry is constantly changing, and it’s important to stay up to date with new trends and technologies to remain competitive. The world of automobiles is rapidly shifting, so keep an eye out for new technologies by reading, researching, and networking on a regular basis.
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Identify the market and demand for an auto repair business in your area
Before opening an automotive repair business, you’ll want to complete a market analysis and market research to find your ideal customer and make sure the customer base is there. You should also do a competitive analysis to find where your competitors thrive and struggle to try to find a gap in the market. For example, if no competitors in your area offer tire services, you might consider including that as part of your offerings. In this way, seeing what the market is like is invaluable to creating your best business plan.
Determine the best location for your business
Location is a big factor in the success of your business. When you conduct market research, you’ll need to make sure there are enough customers to grow your business.
Opening up an auto repair shop means you have to decide whether you will lease or buy property. If you rent property, you may pay a higher rent than you would for a mortgage, but you’ll also be more flexible and won’t have to put down a large down payment. On the other hand, you can have more control over your business’s operations and upgrades if you own the property.
Develop a business plan specific to your speciality
A business plan is a strategy for running and growing your business. It can help you to prioritize your goals, create layers of accountability so tasks get done, and finalize your mission statement. It should include information about the leadership of your business, your location, and your employees. A business plan can help you to make decisions along your journey.
If you plan to apply for financing, like a bank loan or business line of credit, you can include that in your business plan. See Nav’s breakdown on how to write a business plan for more.
How to get financing for your auto mechanic shop
Getting auto repair shop financing can be a long process for business owners, but there are many funding options that you may qualify for. (Pro tip: Use Nav to find the right financing for your business quickly and efficiently). Business financing can be the best option for increasing your staff members, adding new technology, or expanding your shop.
Most lenders require small business owners to have a business bank account before they lend to them. Find the business checking account option for your business with Nav.
While traditional banks tend to have longer approval processes and more strict requirements, many online lenders offer fast, digital application processes that are often easier to qualify for. Borrowers get repayment terms and interest rates depending on factors like their time in business, annual revenue, and credit history. The rates for alternative financing, like online loans, may be higher than traditional banks.
Here are some great options for financing your auto repair shop:
Line of Credit by OnDeck
Product Updates: No More Monthly Maintenance Fee! Monthly Payments and Extended Repayment Terms (18 and 24 month terms) NOW AVAILABLE! A line of credit can be a great asset to businesses who need capital on hand- fast. It allows you the flexibility to draw funds when you need it, and you only pay interest on what you use. Once approved, you can draw available funds quickly and easily without having to provide additional documentation.
Pros
- No monthly maintenance fees
- Monthly Payments available and Extended Repayment Terms (12, 18 and 24 months) Minimal paperwork
- As soon as same-day approval and funding sent by next business day
- Transparent pricing
- Use as much as you need, only pay interest on what you use
- Access available funds with one click.
Cons
- Not available in all states.
Funding Amount
Cost
Repayment Terms
Funding Speed
Short-Term Loan by Rapid Finance
Fast access to funding amounts up to $600,000
Pros
- Loan approval within 24 hours
- Repayment terms up to 18 months
- Growth capital up to $600,000.
Cons
- Rates vary based on industry and risk scoring model.
Funding Amount
Cost
Repayment Terms
Funding Speed
SBA Loan by SmartBiz
For high cost projects with long repayment. No immediate funds needed.
Pros
- APR as low as 11.25% with monthly repayment plans up to 10 years
- Ability to be pre-approved and review terms and conditions before needing to provide a full list of financial documents.
Cons
- Lengthy application process (30-60 days) with lower approval odds
- Requires more documents than other Bank Loan products.
Funding Amount
Cost
Repayment Terms
Funding Speed
Hire employees
You’ll need to hire employees if you want to expand your business or be able to take on new clients. A mechanic is your number one priority in your employee base so they can help work on vehicles. A body shop may also need to add an auto body and glass repairer. You may then need to add a manager to run the shop and a receptionist to greet customers.
Get the necessary licenses and permits
Whether or not you need business licenses or permits depends on where your business is located and whether or not you have employees. For employees, you’ll need to offer workers’ compensation. You’ll need to contact your local Chamber of Commerce, Department of Revenue, or other government branches to find what licensing you need.
Learn where to find the information you need for which licenses you’ll have to get based on your state in this guide from Nav.
Launch your auto repair shop right from the start
Small business owners and entrepreneurs need a solid foundation for their business before they launch. You’ll need to make sure you register as the right business entity, get the licensing you need, have a good accounting and bookkeeping process, and more. This is a lot of work to do yourself, so turning to a business formation service can make the process much easier and smoother to make sure you start off on the right foot.
Here’s how Nav can help
Understanding your financing and loan options is an essential step to growing your business. Financing can help you hire a bigger team, stock inventory, or move to a better location. But getting the right financing can be a struggle. Using Nav is the best way to find personalized financing solutions for your auto repair shop business. The more information you add, the more accurate your financing results will be.
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Tiffany Verbeck
Digital Marketing Copywriter, Nav
Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.