Simple hacks to buy a car dealership

What makes financing a car dealership different from other commercial property purchases

A car dealership purchase combines property acquisition with business asset funding in a single transaction. The lender assesses both the real estate value and the operational cash flow from vehicle sales, servicing, and parts, which means you need to demonstrate both property equity and business viability. Most purchases require at least 30% deposit, though this varies based on whether you're buying the land, the business, or both.

Consider a buyer acquiring an established dealership near Chadstone. The property component might be valued at $3.2 million, while stock and business assets add another $1.8 million. Rather than treating these as separate purchases, a structured commercial property loan covers the land and buildings, while asset finance or a secured business facility funds the inventory. The buyer contributes $1.5 million as deposit across both components, and the lender structures repayments to align with the dealership's trading cycle, where stock turns over every 45 to 60 days but property costs remain constant.

This structure separates appreciating assets like land from depreciating stock, which affects both loan terms and tax treatment. The property loan might run for 15 years with principal and interest repayments, while the stock facility operates as a revolving line of credit that increases during high-volume periods and contracts after settlement. That separation also protects the lender if the business underperforms but the property retains value.

Security and deposit requirements for dealership acquisitions

Lenders typically require the dealership property itself as primary security, plus a registered charge over business assets including stock, fixtures, and sometimes the franchise agreement. If the deposit falls below 30%, residential property can be offered as additional security to reduce the loan amount or strengthen the application. The valuation process includes both a commercial property assessment and a business valuation that reviews profit and loss statements, franchise terms, and manufacturer relationships.

In Malvern East, where commercial sites are limited and tightly held, properties with existing automotive use command a premium due to council zoning and established customer access. A dealership on Waverley Road benefits from high visibility and proximity to Chadstone, but that location also means higher land value, which pushes the purchase price above what cash flow alone would justify. Lenders account for this by accepting a lower rental yield than they would for an office or warehouse, provided the business generates sufficient income to service both the property loan and working capital facility.

Deposit contributions usually need to come from genuine savings, sale of assets, or equity in other properties. Unsecured business loans or director loan accounts can sometimes form part of the deposit, but most lenders require at least half the contribution to come from verified, unencumbered sources. If you're using equity from a residential property, the combined loan-to-value ratio across both securities will determine whether the application proceeds without additional guarantees.

Loan structure options that match dealership cash flow

A split structure works well when the dealership property and business have different risk profiles. The land and buildings might be financed with a fixed or variable commercial property loan, while stock and working capital sit in a separate facility that adjusts as inventory levels change. This allows the buyer to lock in certainty on property costs while maintaining flexibility for stock purchases, which fluctuate based on manufacturer allocations, seasonal demand, and promotional activity.

In a scenario where the buyer holds the property in a trust and operates the business through a company, the property loan is secured against the real estate, and the working capital facility is secured by a registered charge over stock and receivables. Repayments on the property loan are structured as principal and interest over 15 to 20 years, while the stock facility operates with interest-only payments and a quarterly review based on stock turnover reports. The lender may also require personal guarantees from directors, particularly if the business is newly established or transitioning from a previous operator.

How lenders assess franchise agreements and manufacturer relationships

The franchise agreement directly affects loan approval because it determines whether the buyer can continue operating under the manufacturer's brand. Lenders review the term remaining, renewal options, territory exclusivity, and any performance clauses that could terminate the agreement. A franchise with eight years remaining and two five-year options is more attractive than one with three years left and no certainty beyond that.

Manufacturer support also matters. If the brand provides floor plan finance, marketing contributions, or volume rebates, that improves cash flow and reduces the reliance on external working capital. Some manufacturers require the dealer principal to hold a minimum equity stake, which aligns with lender requirements and reduces the risk of over-leveraging. Lenders also check whether the franchise agreement includes a restraint of trade or first right of refusal, both of which can complicate exit strategies if the business needs to be sold.

Interest rates and loan terms for commercial dealership finance

Commercial property loans for dealerships typically sit between owner-occupied commercial rates and investment property rates, depending on whether the buyer operates the business or leases the site to a third party. Variable rates offer flexibility and often include redraw or offset options, while fixed rates provide repayment certainty but may carry break costs if the loan is repaid early. Loan terms generally range from 10 to 25 years for property, though amortisation is often set at 15 to 20 years to keep repayments manageable while ensuring the loan is repaid within the property's effective commercial life.

Working capital and stock facilities are usually priced higher than property loans because they are secured against depreciating assets. These facilities may be structured as a revolving line of credit with an annual review, and the rate can be variable or fixed for 12 months at a time. The combined cost of servicing both the property and stock facilities needs to be covered by dealership earnings, so lenders apply a debt service coverage ratio, typically requiring net operating income to be at least 1.25 times the total loan repayments.

When comparing commercial property loans across different lenders, the rate is only one factor. Flexibility around prepayments, the ability to increase the facility as the business grows, and the lender's willingness to refinance or restructure if circumstances change are equally important. Some lenders also offer progressive drawdown, which is useful if the dealership purchase includes staged improvements or fitout work that occurs after settlement.

Refinancing and restructuring as the dealership matures

Once the dealership is operating consistently, refinancing can reduce costs or release equity for expansion. If the property has appreciated or the loan has been paid down, the buyer may be able to remove personal guarantees, reduce the rate, or shift from interest-only to principal and interest to build equity faster. Refinancing also provides an opportunity to consolidate the property and stock facilities with a single lender, which can simplify reporting and reduce fees.

In our experience, dealership owners who review their commercial finance structure every two to three years are better positioned to take advantage of falling rates, improved business performance, or changes in lender appetite. If the dealership has added a second location or expanded into parts and service, the loan structure may need to be adjusted to reflect the new asset base and revenue mix. Some lenders will also consider mezzanine financing for dealership groups that are acquiring additional franchises but want to preserve existing facilities and avoid cross-collateralisation.

Call one of our team or book an appointment at a time that works for you. We work with buyers across Malvern East and surrounding areas who are acquiring dealerships, expanding operations, or refinancing existing facilities, and we can help structure a loan that fits both the property and the business.

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