Top Tips to Finance a Car Dealership Purchase

Buying a car dealership means financing both the property and the business operating from it.

Most lenders treat a dealership purchase as two separate transactions: a commercial property loan for the land and buildings, and business finance for stock, equipment, and working capital. Getting the loan structure right from the start affects your deposit requirements, interest costs, and how much flexibility you have as the business grows.

Commercial Property Finance for the Dealership Site

A commercial property loan covers the land and any buildings on the site. Lenders typically lend up to 70% of the property's valuation, which means you'll need a 30% deposit plus settlement costs. The property itself acts as security, and most lenders will require a registered valuation before approving the loan.

In Caloundra, dealership sites are often located along Nicklin Way or around the Caloundra West industrial precinct. The valuation will consider comparable sales of commercial properties in the area, the site's zoning, and whether the premises are purpose-built or could be adapted for other commercial uses. A purpose-built dealership with showroom, workshop, and dedicated display areas may attract a lower valuation compared to a multi-use commercial site, simply because the buyer pool is smaller if you ever sell.

Consider a buyer acquiring a dealership site with a valuation of $1.8 million. With a 70% loan-to-value ratio, the lender would advance $1.26 million, leaving the buyer to provide $540,000 as a deposit, plus another $30,000 to $40,000 for legal fees, valuation, and stamp duty. If the buyer doesn't have the full deposit in cash, some lenders will accept equity from another property as part or all of the deposit, provided the combined loan-to-value ratio across both securities remains within their lending policy.

Separating Business Assets from Property Finance

Stock, equipment, and fit-out are typically financed separately from the property. A dealership's inventory might turn over quickly, and tying that finance to a 20-year commercial mortgage doesn't reflect how the business actually operates. Instead, you'd use asset finance for vehicles held as stock, and either a business loan or a line of credit for working capital.

This separation also affects your loan structure. The commercial property loan will likely have a fixed or variable interest rate with principal and interest repayments over 15 to 25 years. The stock finance, on the other hand, might operate as a revolving line of credit, where you draw down as you purchase vehicles and repay as you sell them. Some lenders offer floor plan finance specifically for dealerships, which allows you to finance individual vehicles and repay each one as it's sold, rather than repaying a lump sum on a fixed schedule.

If you're also buying the business as a going concern, you'll need to account for goodwill, which is the premium you pay above the value of the physical assets. Goodwill isn't accepted as security by most lenders, so you'll need to fund that portion from your own resources or negotiate vendor finance with the seller.

Variable Versus Fixed Interest Rates for Dealership Loans

Commercial property loans offer both variable and fixed rate options, and your choice affects both repayment certainty and flexibility. A variable interest rate means your repayments will move with the market, which can increase costs if rates rise, but also gives you the option to make extra repayments or pay out the loan early without penalties.

A fixed interest rate locks in your repayment amount for a set period, usually one to five years. You'll know exactly what the loan costs during that time, which can help with budgeting and cash flow forecasting. The downside is that most fixed rate commercial loans limit or prohibit extra repayments, and breaking the loan early can trigger break costs if rates have fallen since you fixed.

Some buyers split the loan between fixed and variable portions. For example, you might fix 60% of the loan to protect against rate increases, and keep 40% variable so you can make extra repayments as the business generates surplus cash. This approach works particularly well if your dealership income is seasonal or if you expect a large cash injection within the first few years, such as from selling another asset.

How Lenders Assess Serviceability for a Dealership Purchase

Serviceability is the lender's assessment of whether your business can afford the loan repayments. For an established dealership, they'll review the business's profit and loss statements, tax returns, and cash flow forecasts. If you're buying an existing dealership, the seller's financials will be a starting point, but the lender will also want to see your experience in the automotive industry and your plan for maintaining or growing revenue.

Lenders typically require that the business's net operating income covers the loan repayments by a margin of at least 1.2 to 1.5 times. That means if your annual loan repayment is $100,000, the business needs to generate at least $120,000 to $150,000 in net income after operating expenses but before tax. If the business is marginal on serviceability, you may need to contribute additional security, provide a larger deposit, or demonstrate other income sources such as a director's salary from another business.

In some cases, lenders will also require a personal guarantee from the directors, which means you're personally liable for the debt if the business can't repay it. This is common for loans above $500,000 or where the business is newly established.

Flexible Repayment Options and Progressive Drawdown

If you're purchasing a dealership site that requires renovation or expansion before it's fully operational, you might structure the loan with progressive drawdown. Instead of receiving the full loan amount at settlement, the lender releases funds in stages as the work is completed. During the construction or fit-out phase, you may only pay interest on the amount drawn down, which reduces your repayment burden while the business isn't yet generating full income.

Once the dealership is operational, the loan converts to principal and interest repayments. Some lenders also offer flexible repayment options, allowing you to make interest-only payments for the first year or two while you establish the business, then switch to principal and interest once cash flow stabilises. This can be particularly useful if you're transitioning from a salaried role into full-time dealership ownership and need time to build the customer base.

Using Equity from Existing Property as Part of Your Deposit

If you own residential or commercial property with available equity, you can use that equity to contribute toward the deposit or to cover the full deposit amount. The lender will assess the combined loan-to-value ratio across all securities. For example, if you own a home in Caloundra valued at $900,000 with a remaining mortgage of $300,000, you have $600,000 in equity. The lender might allow you to borrow up to 80% of the home's value, which is $720,000, leaving $420,000 in usable equity after your existing mortgage is accounted for.

That equity could form part or all of the deposit for the dealership property. The advantage is that you're not required to sell an asset or draw down savings to fund the purchase. The downside is that your home is now also at risk if the dealership business struggles, because the lender holds security over both properties.

Before using equity, consider whether the dealership purchase will generate sufficient income to service both the new commercial loan and any additional borrowing against your home. A commercial finance broker can model different scenarios and show you how the repayments would work under various income assumptions.

What a Commercial Property Valuation Covers

The lender will commission a registered valuer to assess the dealership property before approving the loan. The valuation looks at recent sales of similar commercial properties, the site's location and zoning, the condition of the buildings, and any income the property generates if it's tenanted. For a dealership, the valuer will also consider whether the site layout is functional for automotive retail, including vehicle access, display areas, and workshop space.

If the valuation comes in lower than the purchase price, the lender will base the loan amount on the valuation, not the contract price. That means you'll need to make up the shortfall with a larger deposit, renegotiate the price with the seller, or find a different lender whose valuer might assess the property more favourably. In some cases, obtaining a second valuation can help, particularly if the first valuer wasn't familiar with the local Caloundra commercial market or didn't account for recent comparable sales.

You'll typically pay for the valuation upfront, even if the loan doesn't proceed, and the cost ranges from $1,500 to $3,500 depending on the property size and complexity.

Refinancing an Existing Dealership Loan

If you already own a dealership and want to refinance the existing loan, the process is similar to a new purchase, but the lender will also consider the business's performance since you took out the original loan. Refinancing can be useful if interest rates have dropped, if you want to access equity to fund an expansion, or if your current lender's loan structure no longer suits the business.

For example, if you originally financed the dealership with a high interest rate or restrictive terms, refinancing to a variable rate loan with flexible repayment options might reduce costs and give you more control over cash flow. Some lenders also allow you to consolidate the property loan and business finance into a single facility, which can simplify reporting and reduce the number of monthly repayments you're managing.

Refinancing does come with costs, including discharge fees from your current lender, application fees for the new lender, and potentially a new valuation. A broker can calculate whether the interest savings outweigh the switching costs before you commit to refinancing.

Buying a car dealership involves multiple financing components, from the property itself to stock, equipment, and working capital. Getting the loan structure right means you're not over-leveraged on any single component, and you have the flexibility to adapt as the business grows. Call one of our team or book an appointment at a time that works for you.

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