How To Start A Used Car Sales Business – You’ll probably find that buying a car for your business is less of a hassle than buying a vehicle for your personal use through a retail dealership. You may want to purchase the car through the commercial division of the local dealership and ensure that the loan comes from a lender for a business loan. A vehicle purchase can help build your business’s credit rating, which can be beneficial in the future.
To have a vehicle in your business name, your business structure must be something other than a sole proprietor, such as a C or S corporation or limited liability company: LLC. However, even with a corporation or LLC, you still have to personally guarantee the car loan. If you have co-owners, the lender may require the co-owners to sign on the dotted line as guarantors in order to approve your financing.
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To obtain vehicle financing for a business-owned vehicle, the dealer — or an outside lender, if you choose to go this way — will need to provide you with information about both your business finances and your personal finances. For a small business without established credit, loan approval for commercial vehicle purchases will be primarily based on your credit rating. However, the lender will also want to see that you have a viable and profitable business. You may be asked for certain company financials as part of the loan application process.
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When you are ready to complete the paperwork for a car owned by your business, you must have a corporate/LLC resolution authorizing the business to purchase the vehicle. The commercial vehicle vendor can provide a sample corporate resolution to use as a model. The resolution states that your company’s LLC members or the corporate board of directors have voted and approved the vehicle purchase. You also need proof of insurance that the business has an auto insurance policy.
If you have good personal credit, buying a car in your business name should go smoothly. Going with a lender for commercial vehicles will build a credit history for your business, thereby reducing the need for personal guarantees in the future. If you want to purchase a more specialized commercial vehicle, such as a dump truck or tow truck, the lender will be more interested in how you plan to use the vehicle to generate more revenue for your business.
Tim Plaine has been writing financial, investment and business articles and blogs since 2007. His work has appeared online at SeekingAlpha, Marketwatch.com and many other websites. near Plehne He has a bachelor’s degree in mathematics from the Air Force Academy. There are a number of costs you must plan for in order to successfully open a car dealership. Proper planning and consultation with experts can help you start your dealership without unnecessary difficulties and last minute surprises.
In addition to the most straightforward costs, such as your business registration, your location and inventory, there are other costs that you may not initially think about. These include obtaining legal and accounting advice, obtaining auto dealer surety bonds as well as insurance.
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The total cost of opening a car dealership is generally considered to be upwards of $100,000 to $200,000. The reason for the range in cost is because of the difference in expenses depending on the state you are opening your dealership in. in, and what type of dealership will you be opening.
For example, opening a dealership selling new cars versus a used car dealership can affect the total cost due to the difference in the cost of your initial inventory.
Here are the main costs that you will need to deal with as you prepare to open your car dealership.
The cost of registering your business will vary from state to state, as well as depending on the type of business you want to set up: a limited partnership (LP), a limited liability company (LLC), a corporation or a sole proprietorship.
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For example, LP registration is $50 in Colorado, $70 in California, $125 in Pennsylvania, and $750 in Texas. Registering a corporation also varies greatly among states, with Massachusetts and Texas having the highest fees ($295 and $310, respectively). On average, it costs about $110 to register an LLC in the US, although this also varies.
Also, when registering a business, you need to keep in mind that there are annual filing fees and maintenance fees that most states require. Keep these in mind as well when deciding on the structure of your business.
The next expense you will have is to rent or buy your dealership location. Prices in this category can vary greatly depending on the type of property you are considering, the location and the state you are in. Monthly costs for a lease can vary between $8,000 and $20,000, with one source citing around $53,000. In an annual fee for renting a shop/garage to sell used cars.
Finding a good location and negotiating a good lease on commercial property can be a complicated process. Be sure to familiarize yourself with the details or contact a professional who can help.
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Already at this stage, or even earlier, you may consider hiring a professional to help you manage and predict expenses. There are many Certified Public Accountants (CPAs) who specialize in working with auto dealers, so you’ll want to consult with someone before continuing. Consulting fees for a CPA typically range from upwards of $200 for your first consultation and as low as $600 for your first consultation.
While you need to register your business as an entity, you will also need to obtain the relevant business license in your state before you can open your dealership. Licensing comes with a number of fees, which also vary from state to state.
License fees sometimes include an application fee, a license or permit fee, a fee for your dealer plate, an additional fee for your vendor, and additional locations (if you plan to open more than one dealership location). Are included.
On the low end, the license fee can be as low as $50 and as high as $500 or more, such as in Colorado. On average, a car dealer license fee varies between $100 and $300.
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Almost all states require auto dealers to obtain an auto dealer surety bond as part of the licensing process. The cost of a surety bond depends on two main factors. First, the bond amount—that is, the full amount of the compensation, also known as the penalty amount—must be guaranteed by the bond. The bond amount is determined individually by each state and can vary from $5,000 to $100,000 (as is the case in Arizona) and more.
The second factor is an applicant’s credit score, as well as their financial statements, personal assets and other financial indicators. Based on the credit score, surety determines the rate at which an applicant can be bonded. The higher the applicant’s score, the lower the rate or cost of the bond.
For example, applicants with higher scores are typically offered rates between 1% and 3% of the total bond amount. For a $25,000 surety bond (such as the one in Texas), applicants with a good credit score can expect to pay somewhere between $250 and $750.
It is also possible to obtain bonds with bad credit, although such bonds tend to have higher rates. But by improving their credit score over time, applicants can get significantly better rates on later bonds.
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There is no nationwide insurance coverage policy for auto dealer insurance. Insurance requirements vary from state to state—both in terms of coverage amounts as well as the types of insurance required.
Sometimes there are several options. For example, in Illinois, dealers can obtain either three separate insurance policies that cover bodily injury/death per person, per accident and property damage for a total of $350,000 or $350,000. for a combined single limit coverage.
As with surety bonds, premiums on insurance vary widely, so you’ll need to consult with your insurance provider to get an accurate quote.
Your inventory will be the single biggest cost to you when opening your dealership. How much your inventory will cost you depends on the type of vehicles you are selling (new or used) as well as the quantity and model of vehicles you offer. Needless to say, it’s easier to start small and build up slowly and will cost you less.
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Based on that logic, your initial investment in inventory will probably be around $100,000 or more. You will need to obtain a loan to manage this type of cost, and a short-term loan may be a possibility.
Finally, you payroll expense is another important item to consider. Good data can be gathered on the average payroll cost per state from the National Automobile Dealers Association’s annual report.
According to the report, the U.S. The average weekly income for dealership employees in the U.S. is approximately $1,122. Monthly expenses will depend on the starting amount of your employees as well as the difference in salary for different positions.
There are many other costs that are not accounted for above, including: legal advice, advertising, buying shop equipment
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