If you have ever been to a used car dealership, it might look like a great business idea as there is a lot of cash going around. Dealing in used cars come naturally to some people—those who have grown up transforming beat-up cars into good-as-new vehicles or those who simply love having a new ride every few months. But your passion for owning and fixing up used cars may not always translate to good business decisions. In fact, used cars pose many risks and great opportunities in the automotive business as the same time. If you are looking to enter this industry, you should be aware of your financing needs and options.
It requires a lot of capital to start a dealership
One of the big risks of opening a used car dealership is that it can cost a lot to finance it. You may go in thinking it’s a good idea and be surprised by the millions it requires to operate one. One of the biggest contributors to this high cost is that dealerships make a lot of profit from selling new cars. So you might have to buy some new cars alongside keeping used cars, or you might have to stock up your garage with cars before you open.
You would also need to maintain these cars, pay for car salesmen, and get insurance to cover all the cars. The higher the value of the cars you have in your garage, the more you have to pay in insurance premiums. You will also have to have a stock of liquid cash if you are not going to have your own repair shop; cars will often need to be fixed up. It only makes sense to have your own repair shop alongside the dealership. But keep in mind that having a repair shop will also add to your costs as you will have to hire a mechanic, more space, and various tools.
These are some financing opportunities
If you want to start a used car dealership, there are many financing opportunities that you can use. You can get various small business loans that can help you start it off. You need to have a lot of cash in stock, so an SBA loan can help you secure a few million in dollars. But you need to have some experience as a lender is not likely to lend to you, unless you can demonstrate credibility.
If you have prior business experience, credit history, and high-value collateral, then this is a good option for you. You can also save money by not starting a dealership from scratch. Instead, you can purchase a used car dealership franchise that can help you save money, provide support for your dealership, and let you have control over lending.
A used car dealership can be a profitable business model as long as it is well thought out. The mark-up on used cars can be high, especially if you have made a name for yourself in the business.
