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I worked with a man who spent 20 years as a salesperson for a large General Motors store before starting a 25-vehicle dealership focused solely on pre-owned pickup trucks. He could sell anything that came onto his lot, but he couldn't keep enough inventory on hand and keep the doors open at the same time. Every truck he sold was one he had to go buy again.
This is the biggest financial challenge of owning a new or used car dealership. Your money problems are unlike any other small and midsize business (SMB). Your largest need is a floor plan, a type of revolving line of credit you use only to buy inventory. Each car you buy is its own mini-loan, and the amount financed is tied to that one vehicle. The lender holds the title to each car, which serves as the collateral, until it's sold.
When a car sells, the payment made to the lender is for that car, and then the funds are released so you can buy another car. The longer a car sits unsold, the more interest you owe, since the interest rate on that balance keeps running until it sells. Most floor plan lenders advance 75% to 90% of the value of the cars being purchased. Typically, a floor plan comes from a specialty lender. Many dealers pair their floor plan with a business line of credit that supports all other aspects of their operation.
Below, I've outlined several types of loans made specifically for used car dealerships, including what each one is good for, the loan terms and rates to expect, and how to tell a floor plan apart from working capital.
| Loan type | Good for | Typical amount | Typical term | Interest Rate | Speed to funding |
|---|---|---|---|---|---|
| Business line of credit | Working capital for daily operations around your floor plan (recon, payroll, marketing) | Up to $5 million | Revolving, 6 to 36 months | APR starting at 6% | As fast as same day |
| Working capital loan | A lump of cash, also good for Buy Here Pay Here (BHPH) loan portfolios | Up to $5 million | Short term | APR starting at 6% | As fast as same day |
| Term loan | A one-time expense such as a lot build-out or a software rollout | $10,000 to $5 million | 6 to 36 months | APR starting at 6% | As fast as same day |
| Equipment financing | Lifts, detailing equipment, and other reconditioning equipment | Up to 100% of the equipment cost | 12 to 72 months | APR starting at 6% | 1 to 5 days |
| SBA 7(a) loan | Buying dealership property or larger expansions, when you can accept a lower rate | Up to $5 million | 10 to 25 years | APR starting at 6.75% | Typically 30 to 90 days |
The Five Financing Needs of Every Used Car Dealership
Most used car dealerships run on some mix of these financing options. Below is a plain description of each one and the financing that tends to fit it.
Floor Plan Financing
A floor plan is a revolving line of credit you use only to buy inventory. You buy each car on the line, and the cars themselves are the collateral. When a car sells, you pay off that car's balance, which frees up the line to buy another.
Keep an eye on the carrying cost, though. Most lenders make you pay down part of a car's balance (a curtailment) once it's sat past 90 to 120 days. On top of that, floor plan costs keep climbing. In one recent quarter, net floor plan expense per vehicle rose about 39%, or roughly $139 a car.
On used cars, most floor plan lenders advance 75% to 90% of the value, and most independent lots land toward the lower end. A floor plan usually comes from a specialty lender, and a lot of dealers pair it with a Clarify line of credit that covers everything else.
BHPH Portfolio Financing
When you finance your own buyers in-house, which the trade calls Buy Here Pay Here (BHPH), you hold those loans, and that ties up your cash.
A revolving line of credit backed by those customer payments frees up cash, so you can write more deals and buy more inventory. It's one of the most common reasons in-house dealers borrow.
Lot and Building Financing
Buying your dealership property is your single biggest fixed cost. That's a classic use for a loan backed by the U.S. Small Business Administration (SBA), like a 7(a) or 504, with long terms, low annual percentage rates, and bigger loan sizes. Bigger loans are usually backed by the property itself as collateral. A term loan can cover a smaller build-out or expansion.
Reconditioning Equipment Financing
Equipment financing covers reconditioning tools like lifts, detailing gear, and a recon bay. The equipment itself serves as the collateral.
DMS and CRM Financing
A dealer management system (DMS) runs your inventory and paperwork, and a customer relationship management system (CRM) tracks your leads and follow-ups. A term loan spreads the cost of a DMS or CRM rollout, so the cash you'd otherwise sink into tech stays free for buying cars.
Floor Plan vs. Working Capital
People mix these two up all the time, so let me clear it up. A floor plan and working capital aren't the same loan, and most dealers end up needing both.
A floor plan is tied directly to inventory. Every car you buy is its own advance, secured by that car. The lender holds the title until it sells. When a car sells, the money pays off that car's balance and frees up the line for the next one.
Working capital is the opposite. It's flexible cash you can spend on almost any part of running the lot, like payroll, reconditioning, marketing, or a slow month. Nothing is tied to a specific car.
The easy way to remember it: Use a floor plan to keep the lot stocked, and use working capital to run everything else. On a small lot, a line of credit can even stand in for a light floor plan.
| Feature | Floor plan | Working capital |
|---|---|---|
| What it pays for | Inventory only (the cars on your lot) | Everything else (payroll, recon, marketing, slow weeks) |
| Collateral | The car itself (lender holds each title until it sells) | None (based on your revenue) |
| When you pay it back | When each car sells, plus a partial paydown if it ages past 90 to 120 days | On a set schedule, weekly or monthly |
| Who provides it | A specialty lender | Clarify's lender network |
Why Auto Dealerships Choose Clarify
We've helped more than 50,000 small to midsize businesses across 1,000+ industries, with over $1 billion funded. Here's what that means for a dealer.
Single point of contact
You'll work with one U.S.-based lending advisor, never a call center or chatbot, who'll shop your file across 7+ financing options and 75+ lenders.
Fast, flexible financing
We can arrange financing from $10,000 to $5 million, and for many revenue-based options, same-day financing is possible once you qualify (for credit scores over 550).
Trustworthy reputation
Clarify holds a 5.0 Trustpilot rating, the highest in the industry. Three out of four businesses come back to Clarify for more financing, nearly twice the industry average.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
How To Apply Through Clarify Capital
Complete an online application with Clarify Capital in about two minutes. Here's how the process works.
Start your application
Answer a few quick questions about your lot and revenue. Checking your options will not affect your credit score.
Talk to your advisor
Your U.S.-based lending advisor reviews your file and shops it to the lenders most likely to say yes. You'll go over amounts, terms, and what fits your vehicle turnover. Some offers carry an origination fee, and your advisor will lay out any costs before you commit.
Get funded
Once you're approved and you pick your offer, money can hit your account as fast as same day for many revenue-based options. Same-day financing is possible for credit scores over 550. Equipment financing usually takes one to five days, and an SBA loan usually funds 30 to 90 days after you apply.
Stock the Lot and Then Finance the Rest
A floor plan keeps stocking your lot, and the working capital around it keeps the dealership running day to day, so line up both before you need them. When you're ready to see real numbers, apply today.
Frequently Asked Questions About Dealership Loans
Still have questions about applying for a loan for your used car dealership? I've broken down the most common questions I hear from clients below.
What Is Floor Plan Financing and How Does It Work?
Floor plan financing is a revolving line of credit you use only to buy inventory. You draw on it as needed, each car acts as collateral, and when a car sells, you pay off that car's balance and free up cash to buy another. Watch the carrying cost, though. Most lenders make you pay down part of a car's balance once it's sat past 90 to 120 days, and floor plan costs have climbed lately, up about 39% ($139 per vehicle) in one recent quarter. On used cars, floor plan lenders advance 75% to 90% of the value, so most independent lots land near the 75% end.
Floor Plan vs. Working Capital, Which Do You Need?
Usually both. A floor plan buys inventory, and each car is its own advance secured by that car. Working capital (a loan or line of credit) covers everything else, like reconditioning, payroll, marketing, or a slow sales stretch. Some small lots can get by on a line of credit alone.
Can You Finance a Buy Here Pay Here Portfolio?
Yes. When you finance your own customers in-house, you hold those loans, which ties up your cash. A revolving line of credit backed by those customer payments frees up cash, so you can write more loans and buy more inventory. It's one of the most common reasons in-house dealers borrow.
Can You Get a Loan To Buy a Dealership Lot or Building?
Yes. Real estate and larger fixed assets are a classic use for an SBA loan, like a 7(a) or 504, with long terms and competitive rates. Bigger SBA loans are usually backed by equity in the property. A term loan can cover a smaller build-out or expansion.
Can You Finance Reconditioning Equipment or DMS Tech?
Yes. Equipment financing covers reconditioning gear like lifts, detailing equipment, and recon bays, with the equipment as collateral. A term loan or equipment financing can also cover a DMS or customer system rollout. And if you need a company vehicle used just for the business, like a parts runner or a tow truck, business auto loans cover that.
What Do You Need To Qualify?
Plan to show your revenue and bank statements, your time in business, your ability to repay, and your credit. Clarify looks for at least $10,000 in monthly revenue and more than six months in business, so it doesn't finance brand-new lots. Floor plans and SBA loans ask for more paperwork, while revenue-based options weigh your deposits more heavily than a bank would.
How Quickly Can You Get Financing?
For revenue-based options like a line of credit, working capital, or a term loan, financing can move as fast as same day once you're approved. Same-day financing is possible for credit scores over 550. Equipment financing usually takes one to five days, and an SBA loan is the slowest route, typically 30 to 90 days.
Is There Financing Available With Poor Credit?
Yes. Many lenders want to see a credit score of 600+, but because revenue-based financing weighs your deposits and cash flow more heavily than your credit, we can often approve businesses a traditional bank or credit union would pass on. In general, our minimums vary by the type of financing. Term loans and equipment financing typically need 550+, lines of credit can be approved with 600+, and SBA loans require 640+. My best advice is to review your credit history. A better credit score can get you better rates and terms, so it's worth looking into financing options for poor credit to see how much you qualify for.
Will My Business Information Stay Safe With Clarify?
Yes. Clarify follows SOC 2 security principles, and checking your options will not affect your credit score. Your information is only used to match you with lenders, and it's never sold.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
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