Using the SBA 7(a) for a Car Dealership
From 2012 to 2017, the new car dealership industry in the United States grew by 4.5%. According to IBISWorld, the next five years are also expected to be growth years.
You can take advantage of this by seeking out government-backed loans offered through traditional lenders like banks, credit unions, and lending institutions.
Up to 75% of the SBA 7(a) loan is guaranteed for loans of over $150,000 and up to $5 million. Commercial real estate and land loans through the SBA 7(a) have a maturity of 25 years. They can come with fixed interest rates with declining prepayment penalties.
The SBA 7(a) loan can be used for nearly all of your car dealership’s needs, as long as the use is a legitimate business purpose:
New construction of a car dealership building and lot. Any of the costs associated with new construction can be covered by the SBA 7(a): large lots, prominent signage, bay doors, alarms and security, etc.
Refinancing a car dealership. The funds from the SBA 7(a) can be used to refinance an existing loan. There are specific conditions when it comes to this use; for more information, check out our page on Refinancing Debt.
Expanding to a new location. Buying an existing building is another common use of the SBA 7(a). Car dealerships are generally purpose-built, so finding the right location is crucial.
Helpful Resource: SBA 7(a) Loan Calculator
SBA 504 Loans May Also be a Great Option for Car Dealerships
While the SBA 7(a) loan is a fantastic option for many borrowers, it isn’t the best choice for everyone. In fact, many car dealership owners find that the SBA 504 loan is a better fit for their needs. The 504 loan typically requires a smaller down payment and offers lower interest rates than the 7(a) loan, but can only be used for commercial real estate, heavy equipment, and other fixed assets, and not for working capital.