Finance for garages and MOT centres

A garage earns from labour, parts and MOTs, and spends heavily on equipment that has to keep up with the cars coming through the door. The work comes in waves set by the registration calendar. Finance for a garage should split cleanly: long finance for kit, short finance for gaps.

The cash-flow shape of a garage

MOT waves. A vehicle must have its first MOT by the third anniversary of its registration. UK registration plates change their age identifier twice a year, in March and September. March is typically the busiest month of the year for new car registrations. Put those together and first MOTs bunch up around March and September, three years on. Drivers can also test up to a month (minus a day) before expiry and keep the same renewal date, which spreads the peak a little.

Parts on account. Motor factors usually supply on monthly account terms, so you fit parts this month and pay for them next month. Customers mostly pay on collection, by card. That gap usually works in your favour, until a fleet customer on 30-day terms joins the mix.

Kit. Ramps, diagnostic systems, ADAS calibration rigs, EV and hybrid tooling, and MOT bay equipment are large one-off costs. Cars with more electronics and more electrified powertrains keep the upgrade list growing.

Which finance fits, and which doesn't

• Asset finance for ramps, diagnostics, calibration equipment, recovery vehicles and courtesy cars. The kit secures the deal, so it is usually cheaper than unsecured money, and the term can match the kit's useful life.
• Working capital finance for short gaps: a quiet winter, a VAT bill, a large parts order for a fleet contract.
• Merchant cash advance for a card-heavy garage with a short, specific need. It flexes with takings, but it is usually the most expensive option here.
• Business loans for a second site or a workshop extension.
• Not a fit: a cash advance to buy a calibration rig. You would repay a five-year asset in six months at a high cost.

What it costs: a worked example

Say the garage company takes £50,000 at a factor rate of 1.20 over about 6 months, collected daily.

• You repay £60,000 in total.
• That is roughly 126 daily payments of £476.19.
• The cost is £10,000.
• As an APR, that is about 75%.

Sterling's rule of thumb calls 50–100% APR "expensive short-term money". Compare that with £100,000 borrowed at 18% APR over 24 months: £4,992.41 a month and £19,817.84 of interest in total. The loan costs more in pounds because it runs longer and is bigger, but far less per pound per year. The "how much can I borrow" calculator on this page gives a rough sense of what your turnover supports.

What funders typically ask a garage for

• Bank statements for the last several months, plus card merchant statements for an advance.
• Filed accounts and VAT returns.
• Equipment quotes for asset finance.
• Lease details for the workshop.
• Any existing finance on kit or vehicles.

A personal guarantee from directors may be required, and a funder may run a credit search, which could be a soft search.

Red flags specific to garages

1. Daily payments sized on March. A repayment set from MOT-peak takings can struggle in a flat January.
2. Kit financed twice. Check whether the equipment supplier's own finance has already been arranged before you take another facility against the same asset.
3. Fleet work on long terms. A big fleet contract paying at 60 days can turn a cash-positive garage into one that needs finance to fund parts.

Limited companies only

Many garages run as sole traders or partnerships. Ask Sterling can only introduce limited companies, because introducing sole traders and small partnerships is regulated credit broking. Business finance for limited companies is not regulated by the Financial Conduct Authority. Our funding partner doesn't take vehicle rental businesses at the moment. That's on us, not you.