SBA 7(a) Auto Repair Shop Feasibility Study

Small loans, many shops

The 7(a) program's automotive mechanical repair book for FY2017 to FY2026 holds 9,568 loans and $4.11 billion, a book large enough to be most of SBA repair shop lending. So its headline figures stay close to their parents, and none moves far enough from both 7(a) overall and repair shops in both programs to be called distinct. The median 7(a) shop loan is $180,000, and half of all 7(a) shop loans sit between $50,000 and $529,250: sizes that fit tools, lifts, working capital or buying a going shop better than the building purchases typical of 504. Franchised shops take 8.4% of the loans.

Higher losses than the 504 shop record

The charge-off record is the real difference between the programs. At least 5.6% of the 3,928 FY2017 to FY2021 repair shop loans that funded have been charged off, and 3.4% failed inside five years of approval, far above the 504 shop figures. Cancellation sits at a 12.4% floor for shop approvals from FY2017 through FY2024, with a 13.2% ceiling. The Huntington National Bank holds 732 repair shop loans worth $182.4 million and U.S. Bank, National Association 599 worth $194.9 million, followed by TD Bank, National Association with 499, Newtek Bank, National Association with 401 and Live Oak Banking Company with 362 loans worth $390.8 million, a much larger average than its peers. California has 1,153 loans, Texas 782, Florida 547, New York 493 and Ohio 452. Approvals fell to 697 in FY2020 and rose to 1,351 loans and $614.3 million in FY2025.

What a 7(a) repair shop study must check

With losses at that level, a lender needs the study to show that this shop is not the one that fails. For the purchase of an existing shop, that means reading the repair orders, not only the tax returns: car count, average ticket, parts margin, comebacks and how much of the work depends on a single fleet account or the seller's personal relationships. Technician retention after a sale is a real risk and should be tested. For a start-up, demand has to be shown from the vehicles and competing shops in the trade area, and the equipment budget priced against quotes. Coverage should be run at a higher floating rate and at a car count below the seller's best year. The appraisal has to separate any real estate from equipment and goodwill, since much of a shop's value walks out with its technicians. Note the class limits: truck repair is folded in with car repair, and body, glass and oil change shops are outside it.