how to get small business loans for your car dealership
According to statistics by the National Automobile Dealers Association (NADA), just last year alone, dealerships sold new cars worth $500 billion. That says a lot about the dealership business. However, you are naive to think that it’s going to be easy to start such a business. Running dealerships can be quite tasking because you have to study the market and see which vehicles sell the most before you can buy your first inventory. You also need to hire a team of mechanics to take care of the inventory and help customers with mechanical issues. You also need good sales people to keep the inventory moving.
Apart from these factors, your business is likely to experience down times when sales are low. You still have to run the dealership when that happens. Getting a small business loan is one way to stay afloat during this period. However, you have to know how you can find the best business loan deals. Here are a few tips that you can follow:
Strategies to Use
1. Don’t be too Hasty to take a Loan from your Bank
When shopping for a small business loan, it may not be such a good idea to ask your banker for it. This is because they know you well and understand your financial situation. This may be look like a good thing on the surface, but it can actually work against you. Your banker knows your dealership’s history. If it always does well, they may give you a fast business loan with hidden extra charges.
2. The Government Might be Able to Help You
If your dealership is minority owned or has women as the majority shareholders or has disabled persons as the main owners, the government can help you with a small business loan. This is because there are special finance programs for such people. What makes a government loan so attractive is the fact that it has fluctuating interest rates. Thus, you can end up saving more from the loan repayments.
3. If you have no Other Option, Use what you Have as Collateral
In many cases, banks often ask for some sort of collateral before they can give out a small business loan to an unknown or new dealership. If you have land or property under the dealership’s name, you can use that as collateral. Alternatively, some banks may allow you to use your inventory as collateral. The reason why this strategy should be your last option is because your dealership business can be history if you fail to repay the loan. The creditor can just claim your vehicle inventory and stall operations completely.
4. Find A Lender that Knows About the Dealership Business
When shopping for a small business loan, it is advisable to find a lender that understands your business. Ask other car dealers where they get their loans and visit those lenders. The good thing about working with such a borrower is that they can give you a practical example of another dealership that took out a loan with them, and how that worked out. These lenders prepare you for the loan, and make you aware of the responsibilities that come with it.
5. Dealing with the Loan
After you have shopped around and identified a good loan deal, there are more steps you can take to ease the burden. Make sure that you have cleared most of your dealership’s debt before you apply for the small business loan. This move improves your total credit score and increases your chances of getting a lower interest rate on the small business loan.
6. Consider Taking a Bigger Loan
You may want a small business loan to cover the current payroll. However, if you can get a lower interest rate on a larger loan, take it since it could work in your favor. For example, you can use the large loan to repay some of your more expensive debts and improve your total credit score.
Use the above tips when shopping for a small business loan for your dealership. These strategies can help you find the best deal and lower your overall debt costs.