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SBA Loans for Car Dealerships

Starting and managing a car dealership is capital-intensive. SBA loans are an essential form of financial assistance for businesses in the automotive industry. These loans can be helpful when dealers try to grow, manage their stock, or improve their functioning.

by | Jul 5, 2024

SBA Loans for Car Dealerships

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Starting and managing a car dealership is capital-intensive. SBA loans are an essential form of financial assistance for businesses in the automotive industry. These loans can be helpful when dealers try to grow, manage their stock, or improve their functioning.

What Are SBA Loans?

SBA loans are credit facilities guaranteed by the Small Business Administration. They offer flexible borrowing terms to small businesses such as car dealerships. The SBA doesn’t provide the loans itself but it approves lenders such as banks and credit unions to offer the loans.

SBA loans provide lower interest rates and more extended repayment terms.  This makes them more flexible and accessible for companies with restricted liquidity conditions.

For example, an average SBA loan is likely to be priced at a 7% market interest rate. On the other hand, conventional loans can go as high as 10% to 15% for small businesses. In aggregate, over the long term, this difference can really add up and make a huge difference.

The Types of SBA Loans for Car Dealerships 

Benefits of Opting for ABL Loans

SBA loans have adapted to meet the needs of car dealerships. Of these, the 7(a) Loan Program is notably all-purpose. It can be used for buying new cars, land, or equipment among other expenses dealerships might face. One outstanding characteristic is flexibility to serve the short-term and long-term financial requirements of dealerships.

Another good loan option is the CDC/504 Loan Program. This is a type of term loan used to buy fixed assets such as buildings or machinery. The down payments are minimal and the interest rates are fixed. 

Microloans are also great for car dealership companies. Provided at a maximum of $50 000, these loans are ideal for small repairs or for meeting working capital requirements. They are easier to be approved for and have less documents requirements. Microloans are ideal for shop cars that require urgent funding.

Another early stage option is the Community Advantage Loan Program, which is less well-known. This program is intended for businesses that operate within low-populated areas or markets. 

New next vehicle car dealers especially those located in rural or credit blemished regions can benefit from this program which allows financing up to $350,000 but with less strict credit standards.

Another revolutionary funding solution is the Export Express Loan Program. Although not specifically for selling cars, it is perfect for any business that wants to enter foreign markets. This program offers financing up to $500,000 with limited paperwork to help dealers facilitate export activities.

These different SBA loan products give car dealers the flexibility to obtain the financing they require to develop and manage their businesses.

Eligibility Criteria

To qualify for an SBA business loan there are certain requirements that must be fulfilled. Car dealerships must be commercial enterprises with profit-making motives and they should be based in the United States of America only.

Credit history is important and must be favorable. The minimum credit score standard for most SBA loans is around 680. Moreover, the business should be able to repay the loan through existing cash flow or realistic projections.

The business plan of the dealership should also be sound. This plan should cover operations, markets, and the outlook concerning monetary returns. It should be stressed that submitting a well-prepared plan increases the likelihood of loan approval.

The Application Process

Factoring vs Tangible Assets

The process of applying for an SBA loan is divided into several stages. First, determine your eligibility. Ensure that your business meets the SBA size standards and the credit.

Next, gather the necessary documents. This entails preparing a balance sheet, income statements,  statement of cash flow, tax returns, and a business proposal document. 

Fill out the application form and submit it to any SBA-recognized lending center. They will study all the documents you provided, and in some cases, they may request more information. The average approval time is roughly 30-90 days.

Pros of Obtaining a Loan from SBA for Car Dealerships

SBA loans for car dealerships offer many benefits. The interest rate is usually considerably lower than that of other loans, which benefits the borrower. For instance, an SBA loan of $ 500,000 at 7% interest for a term of 120 months would attract a monthly cost of $5,805. In comparison to a conventional loan rate of 10 per cent, the monthly payment would be about $6,609, implying annual savings of $9,648.

Other benefits associated with this product include longer repayment tenure. One can take a loan from SBA for a maximum period of up to 25 years, and therefore the monthly instalment figures can be reduced. This will assist car dealerships in managing the cash they have available to meet their total expenses.

Expanding Dealership Facilities

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SBA loans can also be used to expand the dealership’s physical facilities, including acquiring new buildings or reconstructing old ones. A better facility can benefit the business’s overall outlook, optimizing sales and customer satisfaction.

For example, a dealership might purchase a new and larger lot of land and construct a showroom using a $1,000,000 SBA 504 loan. This may attract more customers and present more vehicles to the public.

Hiring Additional Staff

When car dealerships expand, there is always a need to recruit more employees. SBA loans can enable access to capital that can be used to hire new personnel and train them as well.

For instance, an SBA loan of $200,000 could finance five new sales department employees, who would be paid $40,000 each per year. This investment could increase sales revenue and improve customer service in the shop.

Marketing and Advertising

Marketing is an important strategy that car dealerships must implement to attract customers. It is pertinent to mention here that an SBA loan also covers marketing and advertising campaigns.

A dealership might use a $ 50,000 SBA loan to kick-start a massive marketing campaign. This may entail web, social, and even radio and print media marketing.

Improving Technology and Systems

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Today’s dealerships require the use of modern technology to enhance processes. SBA loans can help acquire new software or systems for running a car dealership business.

For instance, a $100,000 SBA loan could be used to implement the new dealership management system (DMS). Its application can enhance inventory control, customer relationship management, and sales control.

How to Prepare for an SBA Loan Application

Below are some ways to boost your odds of approval when applying for an SBA loan. First, maintain a proper credit rating. Usually, SBA loans offer and approve loans for individuals with credit scores starting from 680. Ensure the credit report is accurate, and try to rebuild your credit if it is damaged.

Second, prepare a sound business plan. This should contain the dealership’s operational strategies, including market analysis and a record of its financial prospects. An effectively developed strategy has the potential to boost your application’s believability.

Third, show the scope of opportunities for growth with your dealership. Demonstrate how the loan will enable you to establish more sales, develop new business or operations, or work better. Make your points based on facts, estimates, and forecasts that you can reasonably expect to happen.

The last step, of course, is to choose the right lender. Choose a lender that specializes in SBA loans and understands your type of business. They can be helpful in their own way and offer information that can simplify the application procedure.

The Role of Financial Advisors

Using financial advisors can enhance the probability of success in applying for SBA loans. Consultants are also very useful when it comes to completing the application, creating a quality business plan, and understanding all the intricacies of the lending procedure.

Work with  Flaney Capital

Are you considering elevating the status of your car dealership to the next level? Contact Flaney Capital for financing solutions today. With the help of our customized loan products and advice, you can get the financing you require for your business. Begin your path to business development and success with Flaney Capital. Call 1-888-822-0844.

Watch Our Videos

Are you ready to take your business to new heights? Discover the power of the SBA Business Industry Program. With its comprehensive eligibility criteria, underwriting requirements, and loan guarantees, this program provides accessible and affordable loan options for businesses in rural areas.

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Here are some answers to Frequently Asked Questions.

What are the main advantages of ABL loans?
ABL loans allow companies to use their existing assets as collateral for financing, providing greater flexibility than traditional lending methods.
Are there any risks associated with ABL loans?
Yes, if a business cannot repay its loan, the lender may seize the assets used as collateral. Businesses need to understand this risk before opting for an ABL loan.
How does accounts receivable factoring work for ABL loans?
In accounts receivable factoring within the context of ABL loans, a business sells its outstanding invoices (accounts receivable) at a discount to obtain immediate cash.
What is involved in the due diligence process for obtaining an ABL loan?
The due diligence process typically involves assessing a company’s financial health, including reviewing its balance sheet, income statement, and cash flow statement, among other things.
Can all types of companies apply for an ABL loan?
While any company can apply for an ABL loan, it is particularly beneficial for those with a high volume of accounts receivable or significant tangible assets.