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Getting a small business loan to buy a vehicle is relatively easy; getting small business loans for car dealerships can be difficult. If you are in the business of selling cars to others, then you can easily understand the costs of being in this industry. Purchasing quality cars to sell, paying a team of mechanics and salespeople to keep new inventory moving, and dealing with the overhead of maintaining an appealing lot for your dealership all take a great deal of working capital. According to the National Automobile Dealers Association (NADA), total dealership sales reached a whopping $862 billion last year, and the average dealership payroll was $3.8 million. There’s certainly money to be made in this competitive business.

Just as you may advise your customers to shop around for the best deals for auto loans, your car dealership also needs to find small business loans with the lowest rates and the best repayment terms. This can help you to stay afloat even in slow sales periods. But, where should you place your focus?


It can be tempting to just pick up the phone and call your bank for a small business loan. After all, they are great about lending your customers money, right? And you may play golf with the bank president on weekends. Hold on for a moment. How can you know that you are getting the best interest rate for your small business with the bank? The bank knows your reputation in the local economy so they may be all too eager to issue you a fast business loan, but they may also tack on extra interest and hidden fees. In the end, a standard bank loan could be costing you a lot more than it’s worth.


If you have been paying attention, we just elected a new person to the oval office. This means uncertain times for our nation, and for small businesses everywhere. There are limited number of funds available each year for small businesses to obtain support from the government, but they come with fluctuating interest rates that are tied to principle. If you are a minority or women-owned car dealership just getting started, there may be some special programs available going this route, but for the average mom and pop car dealership, the government just isn’t interested in helping out with a business loan.


The Wall Street Journal advises that oftentimes banks will require collateral to finance a car dealership business loan, unless it’s a well-known franchise brand. Another option in getting a small business loan could be to find a lender that will let you borrow cash against your vehicle inventory. Things are looking up now for the business, so there’s bound to be a nice selection of vehicles worth quite a bit on your lot. But, what happens if you can’t make your monthly loan payments next month? Guess who will come looking to collect, starting with the very lifeblood of your business. This is just too risky of a proposition to take.


A better option when shopping around looking for a small business loan for your car dealership is to find one that has worked with dealerships in the past. This could be a company like United Capital Source, which has a long successful history of serving clients in the auto sales business. Why is this so important? First, it gives you as the business owner the opportunity to learn about small business loan programs that other dealerships have received, and secondly you can learn about other types of small business funding sources that are out there. And there are many.


Once you have talked about some of the above small business loan options, there are some steps your car dealership can take to reduce your interest rates and control your payment terms.

Reduce your current debts – As much as you can possibly manage, take the time to pay down any outstanding credit card bills, vendor accounts, overhead expenses, and other small business loans now. This increases your working capital and your business credit score by several points, which can help you obtain lower interest rates.

Ask about merchant cash advances – If you are accepting credit card payments for on-the-lot financing from your customers, you can easily be approved for merchant cash advance programs that put money in your pocket upfront. Repayment fees then take place as you receive future payments from your customers, so it’s very flexible. There are also similar programs that will factor in your total gross revenues in determining how much funding your business is eligible to receive.

Take a larger loan – You may only want to receive a certain amount of money to pay for some updated equipment, for example. However, it could be a better idea to take out a larger small business loan that comes with a lower interest rate that can be used to pay down other higher rate loans. This can work in your favor in terms of your credit score too.

Don’t risk your collateral – Rather than putting up your dealership inventory and equipment against a small business loan, it’s possible to get a factoring loan against your receivables. Money is likely to be tied up in loans from other sources for your customers, which can back a small loan you need for your dealership now.

However you decide to use your small business loan, it’s important to work with a lender that knows the auto dealership business well and has references from others. Don’t settle for anything less.

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