Financing

[ncautoshop]

When I started my business, I really had no clue about running a business. And knew far less than I should have about fixing cars. 10 years later the shop is doing well, somewhat profitable but it's paying for bad decisions that caused credit issues and a fairly significant amount of debt in the wrong places. For instance instead of getting a business loan (due to lack of collateral ) I financed all my tools from the tool dealers, got stuck in the buy from the tool truck rut and pay a small payment. I'm currently working on improving that posistion & all together we currently hold roughly $30,000 in debt and within the next two year my credit will be in great shape. My question(s) is this - what are the financing options with no collateral - is it smart to expand with a business loan (purchasing a piece of property, building etc) - and are their any tips or advice you might give someone looking to acquire significant financing for the first time? Most banks I've spoken to locally make it pretty clear that business financing is hard to attain right now - is this the norm or is it my inexperience causing their response?

 

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[xrac]

Banks will do equipment loans and they will also loan money for expansion. At one time I had an open line of credit that I could access with a phone call. However, I do not have that anymore since I do not have the need for it. I have been fortunate enough to not have to borrow any money for equipment for longer than 3-6 months and then doing it interest free. Basically if I do not have the cash I do not make purchases.

[carolinahigear]

A very wealthy businessman once told me to remember the 3 rules of business:

 

#1: Get the money

 

#2: Get the money

 

#3: Get the money

 

If you have been there 10 years I would focus on doing more business, making more money, and remember that your clients are the ones with the money, and to leave the lenders alone.

 

Be concerned with making money, and don't be concerned for a second about your credit score, credit worthiness, etc. Just put money in the bank. I am 61, I have had payments, and I hate a frigging payment. Believe me...I have made mistakes....Plenty of them through the years. Worried about making payments. Had sleepless and fitful nights. I opened my shop 10 years ago next month, and came in on a wing and a prayer. The only credit I have had was tool truck credit. I would buy something for, say $5000, pay $1000 per month and have it paid off in 4 months after paying $1000 down. I buy $250,000 in tires per year, and write a check for every tire that comes in the door. I have "0" parts bills at the end of the month because I pay weekly or on the spot. The shop truck is the one I bought in 2005 (a 1997 f-150) and my personal truck I have had since 2003. I now have a very good business and have not had my credit even checked since 2005 because I DON'T WANT ANY!!!

 

I figure'd that I would tell you how I really feel because people need to hear this. Not everyone agrees with this concept, of course, but it's great to not have to make a frigging debt payment!!!

[Andre R]

It really depends what you want the financing for. If its expansion and a new building your pretty much stuck with a bank and you will need collateral . If its new equipment, I have been very successful buying through my parts supplier (napa) . They financed my alignment machine for 20 months with no finance charge, I've done other equipment through them also. Advances on your future credit card income is very expensive. There is a company called On Deck, they lend with no collateral but your payments are taken automatically and the repayment time is very short. Try SCORE through SBA, they are a free resource for this type of information and help.

[ATSAutomotive]

I hate debt, started the shop with the money we had and let the businesses growth purchase equipment, tools, etc. Have a credit card that we pay monthly and am debt free. I want an alignment machine SOOO BAD!!!!! BUT, it has to make sense financially and profitability wise in order for me to pull the trigger. If you don't need it, you don't need it. Save up and then buy it. You talked about expansion but are you truly ready for expansion. Maybe time to go back and crunch ALL of the numbers, technician productivity, ARO, etc to see if you truly need more space, techs, etc or if you need to focus on improving some aspects of your business.

[ncautoshop]

I should clarify this also is somewhat applying to personal finance too. Im interested in the concept of staying small, building a house and a shop on one peice of property, and no real intention of significant growth or hiring multiple techs. I should also clarify that while I may require financing now - in the near future I'll have the ability to pay off the loan before the end of the term, due to the a joint venture which we currently have purchasers lined up for. We are well past where we need an expansion, we're in a very small shop and even at 100% productivity we need more space.

 

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[JamisonAutoGroup]

This is also something that interests me as well. I am just starting out, and am trying to figure out the best decision to get my business off the ground. I currently work full time as an Operations Manager in the building material business. My intent is to build my car business, but staying as small as I can for as long as I can, so that I can reduce my exposure to debt. I work weekends and evening from my home, out of a 12' x 20' portable building. I am getting ready to buy a portable carport to keep me out of the sun while I work. I keep telling myself that this is short term pain for long term gain. I buy, fix and sell BMWs, as well as perform work on customers' BMWs. I like the attitude of not carrying any debt, and appreciate the thread, and the advice that has come out of it! Thanks!

[alfredauto]

I too have very little debt. It took me a long time to be free of monthly payments. My secret is simple - I live off of $500 a week, after taxes, the same I made before I opened my shop. I live in the same old house, drive the same old truck. Regardless if I make $3000 or $30,000 in a month I don't spend more than my fixed income level. Keep working, save your money, and the rest is easy. I secured a loan to buy the shop I was leasing, it wasn't easy. The only way I got the loan was with 40% down payment. If I had bought a new car or a boat when I started making good money I'd be crying the blues paying $5000 a month rent vs the $1000 I pay on my mortgage.

 

I understand life is short and you can't take it with you, but living debt free is a lot easier that sitting up at night worrying who's not going to get paid.

 

Another tip is get a good business credit card or 2 that gives points or cash back. I sometimes spend $50,000 a month on tires and parts, it all goes on my cards. That's $500.00 a month free money just for paying my bills, more if I put the right expenses on the right cards. I pay the balance immediately. If I need a new piece of equipment I buy it, no interest. If I don't have the money I fix the old one.

 

At some point I should upgrade my lifestyle, but I haven't reached that place in my life yet.

 

Off topic a bit:

I'm friends with a couple who are muilti millionaires. I fix his wife's car - 1997 suburban. He drives a 2001 pickup. Both have over 200k miles. I ask him why not get a new car? His response is his cars are paid for and still work. That's how he became wealthy. These people live like blue collar workers and are happy every time I see them. I have friends that make over $200k a year and keep buying stuff until there monthly payments exceed their income. One guy has a $700,000 home and buys a new lexus every year. He appears rich but struggles to make ends meet. He's not very fun to be around.

[phynny]

I too have very little debt. It took me a long time to be free of monthly payments. My secret is simple - I live off of $500 a week, after taxes, the same I made before I opened my shop. I live in the same old house, drive the same old truck. Regardless if I make $3000 or $30,000 in a month I don't spend more than my fixed income level. Keep working, save your money, and the rest is easy. I secured a loan to buy the shop I was leasing, it wasn't easy. The only way I got the loan was with 40% down payment. If I had bought a new car or a boat when I started making good money I'd be crying the blues paying $5000 a month rent vs the $1000 I pay on my mortgage.

 

I understand life is short and you can't take it with you, but living debt free is a lot easier that sitting up at night worrying who's not going to get paid.

 

Another tip is get a good business credit card or 2 that gives points or cash back. I sometimes spend $50,000 a month on tires and parts, it all goes on my cards. That's $500.00 a month free money just for paying my bills, more if I put the right expenses on the right cards. I pay the balance immediately. If I need a new piece of equipment I buy it, no interest. If I don't have the money I fix the old one.

 

At some point I should upgrade my lifestyle, but I haven't reached that place in my life yet.

 

Off topic a bit:

I'm friends with a couple who are muilti millionaires. I fix his wife's car - 1997 suburban. He drives a 2001 pickup. Both have over 200k miles. I ask him why not get a new car? His response is his cars are paid for and still work. That's how he became wealthy. These people live like blue collar workers and are happy every time I see them. I have friends that make over $200k a year and keep buying stuff until there monthly payments exceed their income. One guy has a $700,000 home and buys a new lexus every year. He appears rich but struggles to make ends meet. He's not very fun to be around.

 

I hear where you are coming from but it's depent on the circumstance right? Why horde your money when you have young children when you can use some of it to have experiences you may have never had? I agree 100% to live within your means but at the end of the day its paper money that loses value every year.

[JamisonAutoGroup]

I TOTALLY agree with Alfred Auto, he is right on point! I respect him for having the self discipline to keep to his budget of $500/week. I make 50K a year at my daytime job, but am not left with much take home after child support, student loans, etc. It would be really hard to survive if there were any hiccups in the finances. My wife and I have a new baby, so she just went back to work. Had it not been for the car business to carry us through, it would have been rough! Thanks Alfred Auto for the advice! To add to the 2nd part of his response, my daily driver is a 1988 F-250 4X4, and my wife drives a 2001 BMW 525I with 200K. I couldn't do this with a huge car payment, and really do not want to.

[alfredauto]

My point is not to be a cheapskate miser, but to really think about how you can run a business or home on less. If a good generic scan tool will make you money, by all means go into debt to obtain one. Will going into huge debt to obtain every factory scanner make you any more money? Probably not. At first anyways.

 

It took me a long time to get out of debt, I was pretty much bankrupt 20 years ago. In 1995 I was credit rich, new cars, new snowmobiles, big house in the suburbs. I had a job making almost $100k a year. Endless credit and endless money (or so I thought) By 2000 I got divorced and lost my job. The payments weren't so easy. I had zero money and zero credit. Spent my 401k to buy diapers and fuel oil. Add to that an illness in the family and I was on the way to an early grave. Maybe I have PTSD from it but I'll never go back to being a slave to the lenders. I'll eat ramen noodles before I go back to that rat race.