Getting a Loan for a Car Dealership

[Argus86]

Ok, so I'm thinking about an exotic car dealership in my hometown, where i think it could probably use one, but of course the startup capital for that would be astronomical, i mean, even if the building is rented along with the land, i still have to have about $700,000 to buy the cars.

My question is, will the bank give me that much? I mean, on one hand, it is alot of money and i don't have any credit to my name or much collateral but on the other hand its practically no risk for the bank , after all , if have to go bankrupt, the cars will retain if not increase in value and they would be able to get 95% of their investment back.

or is there an easier way to do this?

Help, please...

[insomnia]

Usually you write up a business plan for this sort of thing. Furthermore, you need to do research to see if your town even needs a dealership. Banks will loan you the money if you can show that you'll be profitable, and yes, there is always risk when they loan money, so they'll want to know absolutely where every dollar is going.

[Dan_d]

Actually most car dealerships do not own their inventory. Typical fashion is that inventory is fully financed by a bank / financial institution. That means that they own the inventory and you may (or may not, depending on credit) pay interest on it until it is sold. Of course, you are on the hook if it is not sold....

If you have good credit you may get a deal that is interest free for up to 6 months. Vehicles are then "paid as sold" - You pay the financier when the vehicle is sold. You'll pay a monthly insurance charge as well for all vehicles financed.

GE is well known for this type of arrangement: see their Auto Inventory Financing.

All that said - you will need to put together a solid plan and sell it to someone. You'll need more than just the vehicle financing in place to get started... good luck!

-dan

[The Stealthy One]

Argus86, how large is the market for exotic cars around your hometown? It does not sound like you've really done any analysis for this, which is very dangerous.

[jasaunders]

What you are asking/talking about it called an asset based loan. Many companies use asset based loans to get money lended on their accounts receivable and/or actual inventory. The interest you will pay is higher and there are more stringent requirements for asset based lending versus commercial lending. If you have no credit and no experience in the industry it will be extremely hard to get a loan based off of your idea alone. Banks don't want to see someone with just an idea, they need more to lend on. Plus, $700,000 is extremely low for an asset based loan, they are typically much more.

If you have any specific questions let me know. My girlfriend works in asset based lending and I could get you some quick answers.

[Argus86]

Thanks a lot guys, you're all helping me out quite a bit on getting a grasp on this. Stealthy One, to answer your question, The exotic car business in my hometown is practically non-existant, but, there are many wealthy, young people who i feel would very strongly be interested in the kind of cars i would be selling. Also the dealership would be less of an Exotic car dealership, and more of a sports car dealership with exotic cars. Not of all of them would cater to the super wealthy, they could range anywhere from a 20,000 dollar muscle car to just under 100,000, anymore than that would just be too much for my specific area. Though most people around here don't know that you can get a classic ferrari for 50,000 or so.


Jasaunders, What is the average amount for a asset based loan? Could you maybe give me an example of another kind of business that would use one?

Thanks fellas!!!

[Dan_d]

Yes, it is ABL - and it is what pretty much 100% of dealerships use to finance their inventory. You can imagine that motorcycle dealers typically run on the small side of this... typical shop has 50-100 bikes on the floor, so you can estimate at least 750k inventory. OEM-type car dealerships are typically quite a bit larger - ie at least 5-10m inventory for a decent sized dealer.

With regards to interest - really depends on your terms and how often you are turning your inventory.

All that said - it is a heck of a lot easier to get financing for an OEM dealership than used-only dealers- or, in this case, exotic vehicles.

[jasaunders]

All different companies in all different industries use asset based loans. Companies that typically use these loans are ones that don't have good enough credit to get a regular commercial loan, thus the bank loans on their inventory and receivables.
There are tons of examples, it could be a meatpacking plant, metalworking machinery manufacturer, car part manufacturer, toys manufacturer, any type of consumer products manufacturer, the list goes on.
Not sure what the average amount is, I can ask when my girlfriend gets home in an hour. But I am sure it is in the millions.

[The Stealthy One]

Ok, I see. In order to help with your business plan, you might want some sort of survey or something proving your point. This would certainly help in securing capital.

[Young Spark]

If you'd like to offer, you should do in-house financing... why do this you say? Well, of course I run a business called "Proficient Resources" and financing your exotic cars "in-house" could get you some more deal's and money if you decide to utilize our services.

To explain, many investor that I work with by cash flow notes, a few buy automobile cash flow portfolio's (must be a minimum of $200,000 worth of notes) to be able to sell, but seeing it being exotic cards won't be a problem. Of course, I'd recommend researching on in-house financing, but if you learn it well, I could definitely connect you with investor's who would be willing to buy your portfolio of auto notes. Or if you don't want to sell the entire portfolio, there are ways of receiving money for a "partial" sale.

Just a little food for thought (keep the "in-house financing" in mind... I'm sure some are bound to disagree )

[Argus86]

Wow, that actually sounds pretty interesting. Could you explain that perhaps in simpler terms for me Young Spark? I must admit that I'm not particularly well versed in the details of business. But that sounds really really interesting...

[Young Spark]

Hey Argus,

Okay, first, let me explain what exaclty in-house financing is. In-house financing is basically where YOU finance the car for the buyer (with no third-party financing... aka, banks or lender's.) Now, when you finance the car for them, its smart to do the same as the bank's and lender's do (check the buyer's credit report, make sure you receive a good down-payment, etc.)

When you owner finance the car for them, what you'll be doing is be creating a "promissory note." The promissory note (if you don't know) will be a simple contract with the term's outlined in it, signed and dated by you, the buyer and preferrably a notary to authenticate things. Also, when you owner finance, the note will be legal binding that the buyer must pay you monthly payments (WITH interest at what rate you can choose.) But ah ha, here is the good part.

Now, in a way, its good to receive monthly payments with the interest cause that can supplement your business, but what if you rather receive all the money at once. Well, this is where "Proficient Resources" comes in. You call us up, and express your interest in wanting to sell your auto portfolio. Keep in mind its recommended you have a $200,000+ worth of seller financed cars. When you call, we'll ask you a sheet of question's. This part usually takes about anywhere from 20-30 minutes maximum. After that, we hang up and we forward the sheet to an 3 investors (1 at a time.) In example: we hang up and Proficient Resources forwards the sheet to 1 investor and waits for a quote from them (which takes anywhere from 12-24 hours for most investor's.) We call you back and let them know how much their offering for your auto portfolio and what method's they can buy it. You can either accept or reject.

If you reject, we can forward your sheet to two more investor's, but keep in mind that the other 2 investor's may quote a lower price then what the first investor did. Of course, you can accept or reject. If you accept, the investor will be given your acceptance notification and (in some cases) "Proficient Resources" will work with you to help you sell the note to the investor. A majority of the time, the investor will end up completing the transaction instead of Proficient Resources (as some prefer to do this themselves.)

If you have any questions, shoot me a PM and I'll fill you in with more of what I can.

[LiL1Penny]

I have recently started a low budget used car dealership. I only have about $20,000 worht of cars on my lot so I funded it all myself but during the initial startup process and talking with many other car dealers I learned that pretty much all of the major dealerships don't own the cars on their lots. They have something called a "floor plan". This is basically a dealership line of credit which allows for you to sell the cars before you have to pay for them.
There are many different types of floor plans out there. They usually have different terms depending on the source you chose.

I would recommend looking around online for floor plans to become more familiar with them and understand them completely. If you are starting a car dealership with more than $100,000 worth of cars on your lot this is what you are looking for.

Here is one company I looked at briefly before I decided to just fund it myself.
http://afcdealer.com/home.do

Click on floor plans on the left of the page to learn a little more about them or just do a google search.

[Young Spark]

OMG Penny... is dat YOUR car can I rent it for the weekend

[Argus86]

This is all really great stuff guys!!! I can't think you enough. I really appreciate all of your feedback so far!