Buying a car dealership requires commercial finance that reflects both the property and the business you're acquiring.
Most lenders treat dealership purchases as higher-risk transactions because they involve property, stock, goodwill, and operational cash flow. If you're a self-employed contractor looking to transition into dealership ownership, the way you structure your commercial loan determines how much capital you tie up at settlement and how much flexibility you retain once you're operating.
Treating Stock and Property as a Single Loan Request
Stock and property should be financed separately because lenders assess them on different risk models.
Consider a contractor purchasing a used car dealership in western Sydney. The property is valued at $2.8 million, and the business includes $600,000 in vehicle stock. Requesting a single loan for $3.4 million creates two problems. First, lenders typically won't fund stock at the same loan-to-value ratio as property. Second, the interest rate applied to stock finance is usually higher because stock depreciates and turns over quickly. Splitting the transaction into a commercial property loan and a separate stock or asset finance facility allows you to access a lower rate on the property component and structure the stock funding with a revolving line of credit that adjusts as inventory cycles through.
In this scenario, the buyer secured a commercial property loan at 70% LVR with a variable interest rate, and a separate $500,000 revolving credit facility for stock. The property loan required a $840,000 deposit, and the stock facility was secured against the dealership's receivables and inventory. This structure kept the property loan serviceable and gave the buyer the ability to draw down and repay stock funding as vehicles sold.
Underestimating the Weight Lenders Place on Operating History
Lenders fund the business as much as the property, and they want proof the dealership generates enough cash flow to service the debt.
If you're transitioning from contracting into dealership ownership, lenders will scrutinise the business's financial statements for at least the past two years. They want to see consistent revenue, stable margins, and a defensible customer base. A dealership with declining sales or thin profit margins will either be declined or funded at a lower LVR, which means you'll need a larger deposit. Lenders also look at whether the business relies on a single brand or manufacturer agreement, because losing that agreement can collapse revenue overnight.
For self-employed borrowers, lenders will also compare your contracting income to the dealership's projected cash flow. If your current income is $180,000 and the dealership's distributable profit is $90,000, the lender may question your ability to service the loan or may ask for a guarantor. This is one reason why buyers often retain part-time contracting work during the first year of ownership, at least until the dealership's income stabilises.
Ignoring Fitout and Working Capital When Calculating How Much You Need
You don't just need enough to buy the property and stock. You need enough to operate for the first six months.
A dealership purchase includes the land and building, the business goodwill, the stock, and the cash required to cover wages, insurance, utilities, and supplier payments until revenue starts flowing. Many buyers focus only on the deposit and forget that working capital sits outside the loan. If you're buying a dealership with $200,000 in monthly operating costs, you should plan to have at least $300,000 in accessible funds after settlement, either through savings or a separate business loan.
In one scenario, a contractor purchased a dealership in the inner west and arranged a commercial property loan and stock facility, but had not budgeted for the $80,000 fitout required to meet the manufacturer's branding standards. The manufacturer required the upgrades within 60 days of settlement, and the buyer had to arrange a short-term business loan to cover the cost. This delayed the dealership's reopening and reduced early cash flow. Planning for fitout and working capital at the same time as the property acquisition avoids this kind of funding gap.
Assuming Pre-Approval Means the Deal is Funded
Pre-approval for a commercial property loan is conditional, and the conditions matter more than the approval itself.
Lenders issue pre-approval based on your financials and a preliminary valuation. The final loan is subject to a formal valuation, a review of the business sale contract, verification of your deposit source, and in some cases, a lease audit if tenants occupy part of the property. If the valuation comes in lower than the purchase price, the lender will reduce the loan amount and you'll need to cover the shortfall. If your deposit is coming from the sale of another asset or a business exit, the lender will want to see settlement statements or evidence that the funds are unencumbered.
For dealership purchases, lenders also review the franchise or dealer agreement to confirm it's transferable and that the manufacturer has approved the sale. If the manufacturer has not yet issued written consent, most lenders will not proceed to settlement. This is one of the most common reasons dealership purchases fall over after pre-approval.
Locking in a Fixed Rate Without Understanding Your Stock Cycle
Fixed rates provide certainty, but they don't suit every dealership buyer.
If you're planning to reduce the loan quickly using surplus cash flow or by selling off excess stock, a fixed rate loan may include break costs if you repay early. Variable rate loans allow unlimited additional repayments and redraw, which suits buyers who expect lumpy cash flow or who plan to reinvest profit back into the loan. Some buyers split their facility, fixing a portion for stability and leaving the rest variable for flexibility.
For a dealership with seasonal sales peaks, such as one that sees higher turnover in the lead-up to the end of the financial year, a variable rate structure allows the buyer to make larger repayments during high-cash-flow months without penalty. This can reduce the loan term and the total interest cost over time.
Overlooking the Difference Between Secured and Unsecured Debt in Your Loan Mix
Most commercial property loans are secured against the dealership itself, but if you're borrowing for working capital or stock, you may also be asked to provide personal guarantees or additional collateral.
A secured commercial loan uses the property as collateral, which allows the lender to offer a lower interest rate. But if your loan structure includes unsecured debt for working capital, that portion will carry a higher rate and may require a personal guarantee. Some lenders will also take a general security agreement over the business assets, which can limit your ability to sell stock or equipment without the lender's consent.
If you're structuring finance for a dealership, it's worth separating secured and unsecured debt clearly so you understand what's tied to the property and what's tied to you personally. This becomes important later if you want to refinance the property or exit the business.
Not Planning for Commercial Property Valuation Timing
Commercial valuations take longer than residential valuations, and they cost more.
A commercial property valuation for a dealership can take two to three weeks, and the cost typically sits between $2,500 and $5,000 depending on the size and complexity of the site. Valuers assess the property based on comparable sales, the income it could generate if leased, and the condition of the improvements. If the dealership includes a workshop, showroom, and office, the valuer will assess each component separately. If the property is zoned for a specific use, that can also affect the valuation.
If you're working to a settlement deadline, the valuation should be ordered as soon as your offer is accepted, not after pre-approval. Delays in valuation are one of the most common reasons dealership settlements extend or fall through.
Structuring Repayments Around Current Income Instead of Projected Income
Lenders assess your ability to service the loan based on the dealership's income, not your contracting income, but you should structure repayments based on what you'll actually earn once you're running the business.
If the dealership's distributable profit is $120,000 and your loan repayments are $90,000 per year, you're left with $30,000 before tax. That may not be enough to live on, especially in the first year when you're still learning the business. Some buyers retain part-time contracting work or structure the loan with interest-only repayments for the first 12 months to reduce pressure during the transition. This gives you time to stabilise the dealership's income before committing to full principal and interest repayments.
Interest-only periods are typically available for one to two years on commercial property loans, and they can reduce your monthly outgoings by 30% to 40% depending on the loan amount. This is particularly useful if you're also servicing equipment finance or other business debt at the same time.
Buying a car dealership is a substantial financial commitment, and the way you structure your commercial finance determines how much control you retain and how quickly you can grow. We work with self-employed contractors across Sydney to structure dealership acquisitions that reflect both the property and the business, and we help you access loan options from lenders who understand this sector. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I use a single loan to buy both the dealership property and the stock?
Stock and property should be financed separately because lenders assess them on different risk models. Property is typically funded at a lower rate and higher LVR, while stock funding is usually structured as a revolving credit facility with a higher interest rate.
How much deposit do I need to buy a car dealership?
Most lenders require a deposit of at least 30% for a commercial property loan, but you'll also need additional funds for stock, fitout, and working capital. Planning for six months of operating costs after settlement is recommended.
What happens if the commercial property valuation comes in lower than the purchase price?
If the valuation is lower than the purchase price, the lender will reduce the loan amount and you'll need to cover the shortfall with additional deposit funds. This is why it's important to order the valuation early in the process.
Should I choose a fixed or variable interest rate for a dealership purchase?
Variable rates suit buyers who expect lumpy cash flow or plan to make additional repayments, as they allow unlimited repayments without penalty. Fixed rates provide certainty but may include break costs if you repay early.
Do lenders assess my contracting income or the dealership's income when approving the loan?
Lenders assess both. They want to see that the dealership generates enough cash flow to service the loan, and they'll compare that to your current income to confirm you can manage the transition. Some buyers retain part-time contracting work during the first year to support serviceability.
