How MCAs Help Auto Repair Shops

Mechanics fixing cars inside of an auto repair shop

A merchant cash advance (MCA) is an alternative source of funding for an auto repair business that does not have access to traditional bank loans and lines of credit. An MCA will give you working capital to finance day-to-day operations and help grow your business. On the other hand, merchant cash advances are high-risk funding products: the funder may seize your business and personal assets if you default on the MCA agreement. 

Whether considering an MCA for your auto repair shop or struggling to repay one, turn to We know the ins and outs of merchant cash advances and will find a debt relief solution that works for you. Contact our office today by completing the convenient intake form. 

Should My Repair Shop Take A Merchant Cash Advance?

If your shop is doing bodywork, transmission repairs, oil changes, tune-ups, or any other work, you need the right equipment to service today’s technologically advanced vehicles. A merchant cash advance can provide funding for technology upgrades and renovations: 

Technology Upgrades

An auto repair shop must have state-of-the-art technology to maintain and grow its customer base. With cars becoming increasingly computerized, staying up-to-date with a highly advanced diagnostics system is crucial. This may involve acquiring one large diagnostic machine for your shop or purchasing multiple smaller devices for each of your mechanics to prevent your team from waiting to use one machine. Also, because of the ever-changing regulations in many states, you will likely need to purchase an entirely new vehicle inspection system. In short, a merchant cash advance will give you funds to update your equipment. 

Renovate Your Auto Repair Shop

You may need to renovate your repair shop to make way for new diagnostic equipment and other technologically advanced tools. You might also consider redoing your waiting room to give customers a more pleasant, comfortable experience while waiting for car repairs. Doing this may also help you gain new customers by word of mouth. Moving to a spacious location or purchasing a second site are also options to keep your business growing. Taking a merchant cash advance will allow you to make renovations or acquire new facilities.

How a Merchant Cash Advance Works for Auto Repair Shops

The first thing to know is that a merchant cash advance is not a loan but the purchase and sale of future receivables. The MCA provider gives you a lump sum of cash based on the expected future sales from your auto repair shop.  The advance and any fees are paid back through daily withdrawals of a percentage of your credit card sales.

Notably, a merchant cash advance does not have an interest rate like a business loan or line of credit. Instead, an MCA has a factor rate expressed as a decimal figure, ranging from 1.2 to 1.5. The MCA provider determines the factor rate by considering the advance amount, prior sales history, and credit rating. While credit scores are not a consideration for qualifying for an MCA, they will influence your factor rate: the lower your credit score, the higher the rate. And don’t be fooled by the low decimal figure. When converting that number into an annual percentage rate (APR), the figure can rise into the triple digits. The bottom line: the total cost of funding for a merchant cash advance is far higher than a bank loan. 

What Else Your Auto Repair Shop Needs to Know About Merchant Cash Advances

Merchant cash providers advertise “no collateral required,” but let the buyer beware. They will require you to sign a personal guarantee, which puts your assets at risk if you cannot repay the merchant cash advance. 

MCA agreements also include a provision known as a confession of judgment (COJ), meaning that you accept liability for the advance and waive any legal defenses. If you default, the funder can quickly obtain a court judgment and begin seizing your business assets, like that new diagnostic equipment. When your business and personal assets are on the line, filing for bankruptcy may be your only option.

Why Call

If you are about to default on your merchant cash advance agreement, we can help. Since an MCA is not a loan, it must contain a reconciliation clause so that it is not a demand for payment. This provision requires the MCA provider to restructure the repayment plan if your auto repair shop experiences a receivables shortfall. That’s where our debt relief specialists come in.

We will negotiate a new payment plan with the funder so that you have breathing room until your sales improve. Our team will also explore other options, such as a refinance or debt consolidation loan. Once your auto repair shop is on steady ground, we also provide ongoing counsel through our subscription service to help you avoid future problems with merchant cash advances. 

Contact Our Debt Relief Specialists For Merchant Cash Advance Assistance

Owning a auto repair shop is not just about making repairs but also making money. If your business is struggling under the weight of a merchant cash advance, contact us immediately. Our debt relief specialists are available 24/7.