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.
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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.
To learn more about the SBA 7(a) loan program or to get a free quote, simply click the button below!
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.