Buying a car dealership means accessing commercial property finance that covers both the land and buildings plus the business itself.
Most migrants looking at dealership opportunities underestimate how lenders separate the property component from the stock and business value. A $2 million dealership purchase might include $1.2 million in property, $600,000 in vehicle stock, and $200,000 in goodwill. Each component attracts different loan structures, different deposit requirements, and different assessment criteria. Getting the commercial property finance structure wrong at the outset can leave you unable to fund stock replenishment or working capital once settlement completes.
How Lenders Assess a Car Dealership Purchase
Lenders treat the property separately from the business when structuring a dealership acquisition. The land and buildings qualify for a standard commercial property loan with a loan-to-value ratio up to 70%, meaning a 30% deposit on the property value. The business component, including stock, plant, and goodwill, typically requires 40% to 50% equity contribution because stock depreciates and goodwill carries higher risk.
Consider a buyer acquiring a used car dealership in an outer suburban location valued at $1.8 million total. The property component is $1.1 million and the business value including stock is $700,000. The lender advances 70% on the property ($770,000) and 50% on the business ($350,000), requiring the buyer to contribute $680,000 in deposit and costs. The buyer also needs to demonstrate they can fund stock replenishment and meet lease obligations to manufacturers if operating a franchised dealership.
Most lenders want to see dealership experience, either through prior employment or a partnership structure that includes someone with relevant operational knowledge. If you are new to the automotive industry, expect the lender to require a larger deposit or additional security to offset the perceived risk.
Variable vs Fixed Interest Rates on Dealership Loans
Most dealership buyers choose a variable interest rate on the property loan because the business often requires refinancing or additional drawdowns as stock levels change. A fixed interest rate locks in repayments but limits your ability to access redraw or make lump sum payments without penalty.
The business loan component usually sits on a variable rate with a revolving line of credit structure, allowing you to draw funds as you purchase stock and repay as vehicles sell. This structure keeps interest costs aligned with actual stock levels rather than charging interest on a fixed loan amount regardless of how much inventory you hold. Lenders typically review the revolving credit facility annually and adjust the limit based on trading performance and stock turnover.
When to Structure the Loan Across Multiple Properties
If you already own residential or commercial property, using that as additional collateral can reduce the deposit requirement on the dealership purchase. A lender may accept 80% leverage across the combined security rather than requiring 70% on the dealership property alone.
In a scenario like this, a buyer owns an investment property worth $800,000 with a $200,000 mortgage. The dealership property and business are valued at $2 million total. The lender can take security over both properties and advance $1.5 million against the dealership plus refinance the existing $200,000 mortgage. This reduces the cash deposit required from $800,000 to approximately $500,000. The buyer needs to understand that both properties are now at risk if the dealership fails, but the structure allows entry into the business with less upfront capital.
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Commercial Valuation and LVR Calculation for Dealerships
Commercial property valuation for a dealership depends on the location, the condition of the buildings, and whether the site is freehold or leasehold. A lender orders a commercial valuation that separates the land value from improvements and considers the property's suitability for alternative use if the dealership ceases trading.
The loan-to-value ratio applies only to the property component, not to stock or goodwill. If the valuer assesses the property at $1 million but you are paying $1.3 million for the business as a whole, the lender calculates LVR on the $1 million property value. This is a common point of confusion for buyers who assume the loan amount should reflect the total purchase price.
Lenders also consider whether the property has specific fitouts or environmental concerns related to fuel storage or vehicle servicing. Sites with underground tanks or contamination history may attract a lower valuation or require remediation before settlement, which adds to your upfront costs.
Stock Financing and Working Capital for Ongoing Operations
Once you settle on the dealership, you need access to ongoing stock finance to maintain inventory levels. This usually sits separate from the property loan and operates as either a revolving line of credit or a floor plan facility provided by a specialist automotive lender.
Floor plan facilities allow you to purchase vehicles on credit, with the lender holding security over each individual vehicle. You repay the advance when the vehicle sells, and the lender releases the security. Interest accrues daily on the outstanding balance, so vehicles that sit unsold for extended periods increase your financing costs. Most floor plan lenders also charge a monthly fee per vehicle in addition to interest.
If you operate a franchised dealership, the manufacturer may have a preferred finance provider or require you to use their captive finance arm. This can limit your ability to compare rates or negotiate terms, but it may also streamline approval if the manufacturer provides a stock guarantee or supports the facility.
Loan Structure for Expanding or Relocating a Dealership
If you already operate a dealership and want to acquire a second site or relocate to a larger premises, lenders assess the application as a business expansion rather than a new business acquisition. This can improve your borrowing capacity if the existing dealership shows consistent profitability and cash flow.
The lender reviews your trading history, profit and loss statements, and stock turnover metrics from the existing operation. If the business generates sufficient cash flow to service the additional debt, the lender may advance up to 70% on the new property with less emphasis on personal assets or secondary security. You still need to contribute the deposit, but the assessment focuses on business performance rather than personal income.
Expanding into a second location also requires a clear separation of working capital for each site. Lenders prefer to see dedicated stock finance facilities for each dealership rather than pooling everything into a single facility, because it allows them to track performance and manage risk at the individual site level.
When to Consider Refinancing an Existing Dealership Loan
Refinancing a dealership loan makes sense when interest rates drop, when the business has grown and you need access to additional capital, or when your current lender imposes restrictive conditions that limit growth. Most commercial refinance applications require updated financials, a fresh valuation, and evidence that the business continues to trade profitably.
If the property value has increased or you have paid down the original loan, you may be able to access additional funds through refinancing without selling assets. A dealership purchased five years ago for $1.5 million might now be worth $1.9 million, allowing you to refinance at 70% LVR and release equity for renovations, stock expansion, or purchasing adjacent land.
Refinancing also allows you to consolidate multiple facilities into a single structure, which can reduce administration and streamline cash flow management. The key consideration is whether the cost of refinancing, including valuation fees, legal fees, and any exit penalties on the existing loan, justifies the improved terms or additional capital you will receive.
Call one of our team or book an appointment at a time that works for you to discuss commercial finance options tailored to your dealership purchase or expansion.
Frequently Asked Questions
How much deposit do I need to buy a car dealership in Australia?
You typically need 30% deposit on the property component and 40% to 50% on the business value including stock. The total deposit depends on how the lender separates property, stock, and goodwill in the purchase price.
Can I use my residential property as security for a dealership purchase?
Yes, using additional property as collateral can reduce the deposit requirement on the dealership itself. The lender may advance up to 80% across combined security, but both properties are then at risk if the business fails.
What is a floor plan facility for car dealerships?
A floor plan facility is a type of stock finance where the lender advances funds to purchase individual vehicles and holds security over each one. You repay the advance when the vehicle sells, with interest accruing daily on the outstanding balance.
Do I need dealership experience to get commercial finance?
Most lenders prefer buyers with dealership or automotive industry experience. If you are new to the industry, expect to contribute a larger deposit or include a partner with relevant operational knowledge.
Should I choose a fixed or variable interest rate for a dealership loan?
Most dealership buyers choose a variable rate on the property loan for flexibility, particularly if they need to access redraw or refinance as the business grows. The business loan component usually sits on a variable rate with a revolving credit structure to manage stock financing.
