Basic Requirements For Starting A Car Dealership
Starting a car dealership is not like starting any other retail operation, or any other business in general. There is specialized licensing, restrictions on location, special insurance, and more.
Every state has different licensing requirements for car dealerships, but they all require some level of licensing. That’s why a good place to start your research for starting a dealership is your local DMV. Let’s dive in a bit into what the broad strokes are in most states to open up a car dealership.
Nearly every state requires a surety bond, but the amount varies anywhere from $5,000 to $100,000. A person can get a bond for as low as a 1% and up to 15% of the bond amount. Major determining factors are personal credit, industry experience, business financials, cash on hand, and personal financials. At 1% a $100,000 bond would be $1,000/year. On top of the surety bond, most states require a business liability insurance policy. Some states have specific requirements about how large of a policy is needed, but most do not. The best way to get both of these is by talking to a local insurance agent.
Most places require you to have a location set up before you can get licensed as well. In some states dealerships have to be built only in specific locations, around other dealerships, in other areas it doesn’t matter at all. In many states your location is required to have a sign out front, so hire a graphic designer to make you a logo. Signs aren’t cheap and you probably won’t want to replace it soon, so get a logo that you’re happy with and put it up there. That’s probably going to be your logo for a long time. Most states require a physical office and/or showroom on your lot as well. Again, check with your local DMV to find out the requirements and find a real estate agent that knows a thing or two about car dealerships.
As part of the application process, all states have, at the very least a form and fee to apply at the DMV. The form can be pretty extensive about you credit history, your business partners, some even require character references and background checks. They want trustworthy, honest people running dealerships (probably because many car dealerships have the opposite reputation). The fee for this application can range anywhere from $10 to $1,000.
The other licensing needed, even before you can get your dealership license is a business license. You’ll need a federal tax ID number and a state retail license. Check the Small Business Administration Website Along with your state department of commerce or corporation commission. for help with those.
If you haven’t noticed, starting a dealership is not a cheap endeavor. Just getting your dealer license will probably be at least 5 digits. Some states require up to $100,000 of personal net worth, others a large line of credit. Loans are going to be a necessity for most people, unless they are independently wealthy.
If you are interested in starting a dealership, continue to check back on this blog. We want to be your resource in starting a dealership.