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Loan Types
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Smash repairs commercial loan
Your dream of running your own smash repairs business could be within reach. Find out how to apply for finance.
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Smash repairs commercial loans appeal to two distinct groups: experienced smash repairers ready to run their business from their own premises, and savvy investors looking to purchase a smash repairs facility and lease it to an experienced professional. Either way, a well-run smash repairs business can be lucrative for everyone involved.
Commercial Loans smash repairers can consider
Australia's smash repairs industry
Costs and profitability
The standard way of measuring the profitability of businesses within the smash repairs industry is to look at the ratio of the cost of sales to turnover. Key benchmarks for the 2015/2016 financial year showed the following ratios for smash repair businesses depending on their annual turnover:
- Annual turnover up to $150,000 - average cost of sales 26%
- Annual turnover between $150,000 and $300,000 - average cost of sales 31%
- Annual turnover over $300,000 - average cost of sales 41%
Smash repairs businesses can use these benchmark figures to assess the relative profitability of the business. In the case of someone looking to purchase an established smash repairs business, determining the cost of sales to turnover ratio and comparing it to Australia's benchmark figures will assist in forming an objective view of the business's profitability.
Licencing
It is essential to understand the licencing and other legal requirements involved in the smash repairs industry before applying for finance. Licencing for motor vehicle repair businesses is a relatively new initiative in Australia and came about as a result of ongoing lobbying by motor vehicle groups.
While smash repairs licencing can be an onerous and sometimes time-consuming obligation for smash repairs professionals, the overall aim is to improve the standards of the industry and put an end to price undercutting by unqualified and sometimes unscrupulous vehicle repairers.
All vehicle repair businesses, including smash repairers, need to hold a valid motor vehicle repair business licence, which can be applied for as a body corporate, partnership or sole trader. Applicants must specify the type of motor vehicle work they intend to undertake, with different licencing conditions applying to different classes of work.
Licencing requirements vary throughout Australia states and territories and are administered by the following government bodies:
- Australia Capital Territory - Office of Regulatory Services
- New South Wales - Office of Fair Trading
- Northern Territory - Consumer Affairs
- Queensland - Office of Fair Trading
- South Australia - Consumer and Business Services
- Tasmania - Consumer Affairs and Fair Trading
- Victoria - no motor vehicle repair license required
- Western Australia - Department of Commerce, Consumer Protection Licensing
Choosing the right smash repairs business for you
Location and zoning
Smash repairs facilities are unlikely to be located within the CBD of a city; however, they should be located in an established industrial area easily accessible by major roadways.
Keep in mind that land zoning can vary over time and from council to council. Make sure you are aware of the current zoning of the smash repairs facility and make enquiries with the local council about future plans to change the zoning of the area. Smash repairs facilities can successfully operate in heavy or light industrial areas or in areas zoned mixed use.
Standard or purpose-built
Some commercial assets are virtually always considered standard commercial properties, such as office buildings and retail outlets. Other commercial assets are always purpose-built, such as an aged care facility. Smash repairs premises can be considered either standard or purpose-built commercial property depending on the individual building.
The distinction between standard and purpose-built commercial properties is an important one because lenders tend to be much more conservative when considering commercial loan applications for purpose-built facilities than for standard real estate. This is because purpose-built premises may not easily be converted to suit other types of businesses and can be harder to sell.
Consider whether the smash repairs premises has special facilities such as oil sinks or petrol pumps that may cause a lender to consider the property to be purpose-built, adversely affecting the terms of your loan and the amount of finance you may ultimately be offered.
Finding finance for a smash repairs business
Standard loan terms
The commercial loans industry is largely unregulated, giving lenders the freedom to offer varying loan terms to suit the circumstances of the individual applicant. Equally, borrowers have the freedom to compare their options and negotiate better deals with lenders.
As a guide, the following loan terms may apply to a smash repairs commercial loan:
- Loan amount. You may be able to get a loan amount of up to 70% of the value of the smash repairs property. If you need a higher amount, you may be able to get this up to 100% if you apply for a business loan with a guarantor or if you use a residential property as additional security for the loan.
- Maximum loan term. The maximum loan term is typically 15 years, or you may be able to get up to 30 years if the loan is secured by residential property.
- Low doc loans. These are available in certain circumstances, but no-doc loans are rarely offered.
- Annual reviews. These may be required depending on the strength of the application.
How to apply for a smash repairs commercial loan
The strength of a commercial loan application will rely to some extent on the strength of your financial circumstances. Your chances of having a loan application approved will be greatly increased if you can highlight your strengths as a borrower. Your aim is to convince the lender that you have the skills and experience required to run a successful, profitable business that can easily fulfil its obligations under the loan.
If you are planning on running the business yourself, you will need to provide evidence of at least five years' experience in a managerial or similar position in a smash repairs or panel beating business. You will also need to provide a comprehensive business plan including cash-flow forecasting. You should get the help of an accountant to develop your business plan in order to mitigate all potential concerns regarding the strength of the business.
If you are purchasing the smash repairs premises as a going concern, provide evidence of the current lease arrangement and the strength of the tenant's business. Lenders will be looking to see that you have a strong, stable tenant in place who is running a successful business and has no problems paying their rent.
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