Buying a car dealership involves more than securing the property. The loan structure needs to account for land and buildings, existing stock, business goodwill, and the working capital required to operate from day one.
Most lenders separate the property component from the business acquisition when structuring commercial loans for dealership purchases. The land and buildings can be secured against the real estate itself, typically at 60% to 70% LVR depending on the location and condition. The business purchase, including stock and goodwill, usually requires additional security or a lower LVR because vehicles depreciate and stock values fluctuate with market demand.
How lenders assess car dealership purchases
Lenders assess car dealerships by splitting the transaction into distinct components. The commercial property is valued separately from the business, and each component carries different lending terms. Real estate along Doncaster Road or near Westfield Doncaster typically supports higher borrowing because the land has intrinsic value independent of the business. Stock and goodwill are assessed based on trading history, franchise agreements if applicable, and your experience in automotive retail.
Consider a buyer acquiring an established dealership with a property valued at $2 million and a business purchase price of $1.5 million including stock and goodwill. A lender might offer 65% LVR on the property, providing $1.3 million secured against the real estate. The remaining $2.2 million would require either additional security such as residential property, a larger deposit, or a combination of both. The lender will review profit and loss statements for the past three years, existing franchise agreements, and your capacity to service the debt from projected dealership income.
Separating property and business finance
You can structure the property purchase under a commercial property loan and the business acquisition through business loans or vendor finance. Splitting the transaction this way can reduce the overall interest cost because the property loan typically attracts a lower rate than unsecured or partially secured business lending. It also provides flexibility if you later want to sell the business but retain the property, or vice versa.
Lenders treat the property component as commercial real estate financing and assess it based on location, building quality, and lease terms if you plan to lease part of the site. The business component is assessed on cash flow, your equity contribution, and whether the dealership has a franchise agreement with a major manufacturer. Franchise dealerships often receive more support from lenders because the brand provides some stability, but independent dealerships can still secure funding if trading history is solid.
Ready to get started?
Book a chat with a Mortgage Broker at OVM Finance Group today.
Working capital and stock financing
Car dealerships need working capital to cover stock purchases, wages, and operating costs between vehicle sales. Some lenders offer a revolving line of credit or progressive drawdown facility tied to the commercial loan, allowing you to draw funds as stock is purchased and repay as vehicles are sold. This structure aligns repayments with cash flow rather than requiring fixed monthly payments on the full loan amount from day one.
Stock financing can also be arranged separately through floor plan facilities offered by automotive finance companies. These facilities are secured against the vehicles themselves and allow you to purchase stock without tying up the loan funds intended for property or business acquisition. Floor plan interest is typically higher than property loan rates but provides flexibility to scale stock levels based on demand.
Security requirements for dealership purchases
Most car dealership acquisitions require security beyond the business itself. If the property is part of the purchase, it will form the primary security, but lenders usually require additional residential property or cash deposits to cover the gap between the property LVR and the total purchase price. The vehicles on the lot are considered stock, not fixed assets, so they carry limited value as loan security unless you are using a dedicated floor plan facility.
In scenarios where you are leasing the dealership premises rather than purchasing the property, lenders rely more heavily on business cash flow and external security. A buyer leasing a site in Doncaster East and acquiring only the business and stock would typically need to provide residential property as security or accept a higher interest rate on an unsecured portion of the loan. Lease terms also matter because lenders want assurance that the dealership can remain on site long enough to generate the income needed to service the debt.
Loan structure and repayment terms
Commercial loans for car dealerships are usually structured with variable interest rates and interest-only periods of one to five years. The interest-only period allows you to manage cash flow in the early stages of ownership when you may be building customer relationships or adjusting stock levels. After the interest-only period, the loan converts to principal and interest repayments unless you refinance or restructure.
Fixed interest rates are available but less common for dealership purchases because the loan often includes multiple components with different drawdown schedules. If you are purchasing property, business, and stock in stages, a variable rate loan with redraw or offset options provides more control over funds and repayment timing. Some lenders allow flexible repayment options where you can make additional payments during strong trading periods and reduce payments during quieter months, but this depends on the lender and loan structure.
Franchise agreements and lender appetite
Dealerships operating under franchise agreements with major manufacturers often find it simpler to secure commercial finance because lenders view the brand as reducing business risk. The franchise agreement usually includes support for marketing, stock supply, and training, which makes projected cash flow more reliable. Lenders will review the franchise agreement to confirm the term remaining, any renewal options, and whether the franchisor has termination clauses that could affect the business.
Independent dealerships without franchise agreements can still access funding, but lenders place more weight on your trading history and automotive industry experience. If you have managed a dealership previously or have a background in automotive sales, lenders are more comfortable with the application. If this is your first dealership purchase, expect to provide a larger deposit and more detailed business projections.
Choosing the right loan structure for your situation
The loan structure depends on whether you are buying the property, leasing the site, purchasing an existing business, or starting fresh. Buying the property and business together usually provides the most lending options because the real estate acts as strong security. Leasing the premises and buying only the business limits your options to cash flow lending or loans secured against other assets.
If you are expanding an existing dealership or adding a second location, lenders may consider the cash flow from your current operation when assessing serviceability. This can increase your borrowing capacity and reduce the deposit required for the new site. However, you will still need to demonstrate that the new location can generate enough income to cover its own debt, particularly if the existing business is already leveraged.
Call one of our team or book an appointment at a time that works for you to discuss how a commercial loan can be structured for your dealership purchase and what security or deposit requirements apply to your situation.
Frequently Asked Questions
What LVR can I expect when buying a car dealership?
Lenders typically offer 60% to 70% LVR on the commercial property component of a dealership purchase. The business, stock, and goodwill components usually require additional security or a larger deposit because they carry higher risk than real estate.
Can I finance the property and business separately?
You can structure the property purchase under a commercial property loan and the business acquisition through business loans or vendor finance. Separating the components often reduces interest costs and provides flexibility if you later want to sell one part of the transaction independently.
Do I need additional security beyond the dealership property?
Most dealership purchases require security beyond the business itself, particularly for the stock and goodwill components. Lenders often require residential property or additional cash deposits to cover the gap between the property LVR and the total purchase price.
How does working capital fit into the loan structure?
Some lenders offer a revolving line of credit or progressive drawdown facility to cover stock purchases and operating costs. Alternatively, you can arrange floor plan financing through automotive finance companies, which is secured against the vehicles themselves and aligns repayments with sales.
Does having a franchise agreement help with loan approval?
Dealerships with franchise agreements from major manufacturers often find it easier to secure commercial finance because lenders view the brand as reducing business risk. Independent dealerships can still access funding but may need a larger deposit and stronger trading history.
