Running an auto parts business can be a challenge at any time, but never more so than in the present climate. The pandemic has created a number of difficulties that combine to make successful trading increasingly tough. Businesses face considerable disruption to their supply chains, due to the effects of Covid-19 restrictions both domestically and internationally. Supply chain failures mean that trying to reliably source auto parts can be difficult. In some cases, parts manufacturers have ceased production, or are only operating at partial capacity. To keep your customers supplied, it’s more important than ever to keep your inventory stock levels high.
Added to the need to buy more stock than previously is the necessity of employing skilled technicians to supply (and, if applicable, fit) the parts you provide. High-grade technicians aren’t cheap – what’s more, if their wages aren’t paid on time, they’re not going to stick around for long! What this means for many parts businesses is that they need a high level of working capital at a time when customer demand is fluctuating and the overall demand picture is unclear. Nobody knows when a twist in the pandemic’s progress will affect motorists’ needs for new parts.
For all these reasons and more, there is a high Capex need in the auto parts industry, without an operator always having the working capital to keep up. In these circumstances, equipment financing or accessing one of the many small business loans that are currently available could make a big difference to the chances of achieving sustainable success.
Here we take a look at some of the main sources of funding available for parts traders who need some extra help just now. The good news is that there are lots of options to choose from – not just from traditional bank providers, but also from private lenders, who often have more flexible terms and lending conditions.
With businesses ceasing to trade at an alarming rate due to the chaos caused by the pandemic, those businesses that do survive will be in a strong position to increase their market share.
Available Lending Opportunities
Originated by traditional banks but funded by backed by the federal government, an SBA loan is intended for use by small businesses. Businesses that need SBA loans need to meet certain criteria to be eligible. In comparison with other types of lending, SBA loans offer a competitive rate of interest and relatively flexible repayment terms.
This type of borrowing is usually restricted to the acquisition of assets, such as machinery or technology. The equipment purchased is used as security – if the borrower fails to stick to the repayment schedule, or defaults on the loan completely, the equipment can be taken and sold to help cover the loan costs. The borrower doesn’t own the equipment until the loan is completely paid off.
As the equipment is used as security, an equipment loan may be available to businesses that have a sub-prime credit rating and/or a limited financial history.
PPP (Paycheck Protection Program)
PPP was initially launched in response to the difficulties many businesses began to experience (and are still experiencing) due to the disruption which the Covid-19 pandemic causes, the second round of PPP (PPP Round 2) is now in operation. PPP Round 2 was open to eligible businesses whose profits declined by 25% or more in any quarter of 2020, in comparison to the profit figure for 2019.
PPP can be spent on a range of business expenses, including supplier costs, worker protection costs, operational costs, and property damage costs. Note that some businesses will not have to pay this money back.
While the PPP has ended, financing for companies recovering from the affects of the pandemic still exist. Get in touch with the team at Clarifi and we’ll be happy to help.
Business Credit Card
If you have a fluctuating need for working capital, a business credit card may be the best solution. A business credit card works in the same way as a personal one – if you borrow on it, or use it for purchases and don’t repay the money within a set amount of time (usually thirty days), you’ll pay interest on the balance.
This can work well to buy parts from your suppliers if you’re confident that enough customers will pay their invoices promptly to repay the credit card debt. Ideal for short-term credit (a week or two at most), if you’re going to need long-term borrowing, some other type of product is probably more suitable.
Line of Credit
A line of credit may be something as simple as an overdraft facility on your business bank account. It can often be agreed in advance of need, ensuring instant access to credit if required. Like other forms of credit, interest will be paid on the balance. If your business is regularly dipping into your overdraft, long-term borrowing at a more competitive rate of interest may be more cost-effective.
In addition to these options, there are also choices such as invoice factoring, private borrowing, secured borrowing, or invoice discounting. If you want to grow your parts business, need an advance for auto parts, or require assistance with working capital, we can help. With plenty of alternatives available, Clarifi is committed to finding every auto part operation an affordable, workable borrowing solution.