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%. Take advantage of this growth by seeking out government-backed loans offered through traditional lenders like banks, credit unions, and lending institutions.
Owning a car dealership can be expensive, and many owners seek financing at some point during their businesses' growth phases.
How an SBA 7(a) Loan Can Help Your Dealership
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 — both the building and the land acquisition — can be covered by the SBA 7(a). This includes large lots, prominent signage, bay doors, alarms and security, and so on.
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.
Case Study: Refinancing a Minnesota Dealership
Shawn, an experienced entrepreneur, owned a well-established car dealership, North Star Autos, located in Grand Rapids, Minnesota. Over the years, the dealership had grown steadily and become a trusted source for new and used vehicles in the community.
However, Shawn faced a significant challenge: The dealership had accumulated debt totaling $3.2 million. The high interest rates on the loans were causing financial strain on the business, and Shawn knew he needed to find a better solution to manage the debt and secure the future of North Star Autos.
After researching various financing options, Shawn decided that an SBA 7(a) loan would be the best fit for his situation. The loan program offered attractive interest rates and extended repayment terms, which would help him refinance the dealership's existing debt and reduce the financial burden.
Shawn worked diligently to gather all the necessary documentation for his SBA loan application. He submitted detailed financial statements, an overview of the dealership's performance, and a solid plan for managing the business moving forward.
The lender carefully reviewed Shawn's application and saw the potential in North Star Autos. They recognized that refinancing the dealership's debt would free up cash flow, allowing Shawn to invest in the continued growth and success of the business. With a strong application and a clear plan for the future, Shawn's SBA 7(a) loan was approved.
The refinancing allowed Shawn to consolidate the dealership's debt into a single, lower-interest loan with manageable monthly payments. This provided North Star Autos with the financial stability it needed to continue serving the community and growing its customer base.
Thanks to the SBA 7(a) loan program, Shawn was able to refinance the dealership's debt and secure a brighter future for North Star Autos.
This is a fictional case study provided for illustrative purposes.
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.
What are the requirements for a car dealership to qualify for an SBA 7(a) loan?
According to the SBA, a car dealership can qualify for an SBA 7(a) loan as long as their net worth is under $8.5 million and their net income averages less than $3 million. Source
At Commercial Real Estate Loans, we can determine if your dealership does qualify for SBA financing, and, if so, help you explore loan options. These include the popular SBA 7(a) and SBA 504 loan programs. Source
What are the advantages of using an SBA 7(a) loan for a car dealership?
The SBA 7(a) loan program offers car dealerships several advantages. According to the SBA, the program can provide access to greater financing opportunities, doubling the number of dealerships eligible for the program. Additionally, the SBA 7(a) loan program can be used for working capital, which can be used to purchase inventory, hire staff, and cover other operational costs. The SBA also states that car dealerships can qualify for funding as long as their net worth is under $8.5 million and their net income averages less than $3 million.Source 1
What are the disadvantages of using an SBA 7(a) loan for a car dealership?
The main disadvantage of using an SBA 7(a) loan for a car dealership is that it cannot be used for floor plan financing. According to the SBA, a car dealership can qualify for funding as long as their net worth is under $8.5 million and their net income averages less than $3 million. The funding dealerships could access under the SBA program would be used for working capital as opposed to for floorplan financing.Source Source
How long does it take to get an SBA 7(a) loan for a car dealership?
The SBA 7(a) loan process typically takes between 30 and 90 days, depending on the complexity of the loan and the lender's workload. According to the SBA 7(a) Loan Program Guidelines, car dealerships can qualify for funding as long as their net worth is under $8.5 million and their net income averages less than $3 million.
What documents are required to apply for an SBA 7(a) loan for a car dealership?
To apply for an SBA 7(a) loan for a car dealership, you will need to provide the following documentation with your application package:
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
In addition, the SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.
To complete your application package, you’ll be required to submit SBA-specific forms and documents. The forms and documents commonly required in the application package include:
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Financial statements, including a balance sheet, profit and loss, and income projection.
If you’re a franchise, you may need to provide a Franchise, Dealership & Licensee Agreement, signed by an authorized agent for the franchise. Other examples of eligibility documentation include business purchase agreements and fuel supply agreements.
If you’re using real estate as collateral to secure the SBA loan, you may need to bring a real estate appraisal. Business licenses, documentation of former lawsuits, and lease agreements may also be required.
If you’re not sure what to bring, we’d be happy to coach you on your specific case. We’ve been in the capital markets industry for a long time and we can help ensure that you get the funding you need. Contact the experts at SBA7a.Loans with any of your questions.