Business Line of Credit for Used Car Dealers
A business line of credit gives a used car dealer a limit to draw for auction buys, reconditioning and curtailments, then repay as cars sell and deals fund. It works alongside the floor plan rather than replacing it, filling the gaps the floor plan doesn't cover and costing interest only while the balance is out.
How does a dealer use a line alongside a floor plan?
Units the floor plan won't take
Older, high-mileage or specialty units sometimes don't qualify for floor plan financing. A draw buys them, and the sale repays it.
Reconditioning and recon backlogs
Paying for parts, tires and detail work on several units at once gets them listed faster. Each sale repays the recon cost.
Tax refund season
Many used car buyers use tax refunds for down payments in late winter and early spring. Dealers stock up ahead of that rush, and a draw covers inventory costs the floor plan doesn't.
A draw for a slow month, worked out
Limit $75,000, price 2.25% monthly on what's outstanding, deposits around $250,000. The owner takes $62,500 to cover a slow month, then pays a third back each month.
| Step | Balance on the line | Cost that month at 2.25% |
|---|---|---|
| Draw in the slow month | $62,500 | $1,406.25 |
| After one repayment | $41,670 | $937.50 |
| After two repayments | $20,830 | $468.75 |
| Paid back | $0 | $0 |
All in, about $2,810, and the limit reopens once it's repaid. QCEW job counts for used car dealers (NAICS 441120) barely move (2.1 points top to bottom), so the dip here is hypothetical; swap in yours.
What do funders look at for a dealer's line?
Bank statements, floor plan statements, sales reports, days in inventory, business tax returns, credit and the dealer license. Dealers with steady unit sales, fast turn and a good floor plan history qualify for larger limits.
The floor plan agreement
Funders check whether the floor plan company holds a lien on all business assets or only on financed units. A blanket lien can limit what a line can be secured by.
How should a dealer manage the line?
Repay each draw as the related unit sells, and don't use the line to carry aging inventory month after month. Clearing the balance regularly shows funders the line is working as intended.
Watch aged units
Units past a certain age cost the dealer in curtailments and lost margin. Pricing aging cars to sell frees cash faster than drawing more.
Quick answers
How much line of credit can a used car dealer get?
Limits often follow monthly revenue and unit sales, adjusted for credit, time in business and floor plan obligations. Dealers who sell cars quickly and keep floor plan payments current tend to see larger limits than those carrying many aging units.
Can a used car dealer have a line of credit and a floor plan?
Often, yes. Many dealers use both. The floor plan finances inventory, and the line covers reconditioning, units the floor plan won't take and other gaps. The floor plan agreement has to allow it, so funders review it first.
Why does tax refund season matter for a car dealer's line?
Refund season brings a surge of buyers with down payments in late winter and spring. Dealers who stock up beforehand sell more. A draw that funds that inventory and gets repaid from spring sales is a common, efficient use of a dealer's line.
More for used car dealers
- Same-day merchant cash advance for used car dealers
- Second position MCA for used car dealers
- MCA consolidation for used car dealers
- How funders read used car dealers
- Business line of credit: how it works
Run your own numbers with the MCA APR calculator.
Want to see what fits a used car dealer like yours?
Tell us your slow months and your open advances, and we'll shop the file with funders whose programs fit. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.