Auto Dealership Feasibility Study Case: Sioux Falls, South Dakota, SBA 504

Feasibility Study Company prepares auto dealership feasibility studies for owners, developers and their lenders. The work behind a dealership loan has four parts: a dated read of the market, a count of the dealers already selling there, a priced build, and a test of how much debt the store can carry. Here it is applied to one hypothetical project, a new independent used-vehicle dealership with a service department on a vacant lot in Sioux Falls, South Dakota, financed with an SBA 504 loan. Owners who search for an auto dealership feasibility study consultant, or for an auto dealership feasibility study company they can hand to a bank, will find on this page what such a study contains. We can run these steps on your own site.

The subject is a generic one-story building of about 18,000 square feet on about 3.0 acres in the 57th Street and Veterans Parkway growth area of Sioux Falls, in Minnehaha County, with 8 service bays. No parcel, owner, brand or listing is meant. The market figures are dated public records. The model figures are engine results drawn from a closing input table, every line of which says where it came from or that it is an assumption. The store sits in our auto dealership practice and, as an owner-operated used-vehicle store, to its independent used car segment. The city is in South Dakota, and the rules of the program appear on our SBA 7(a) and 504 page.

One limit governs how to read the page. The research for this state holds market evidence, wage and permit records and the federal business counts, but no dealership sales, margin or inventory figures. Those inputs are labelled assumptions, they were set before the model was run, and they were not adjusted afterwards to change the answer. The answer is negative, and the sensitivity table and the lender conditions show how far it would have to move.

A used-vehicle store lives on households that need a vehicle, can finance one and are moving in. The table sets out the public record for each, from the city, the state labor agency and the Bureau of Labor Statistics.

People and jobs

The city's own year-end report counted 224,676 residents and a gain of more than 5,000 in 2025, a rise of 2.3% [1]. The Census-based figure that the state labor agency published in December 2025 is 209,300 for the city in 2024 and 299,000 for the metropolitan area [3]. The gap is a difference of source and of year, not a contradiction, but a lender who sees both should ask which one a drive-time analysis uses. Employment is counted more cleanly. Minnehaha County had 139,770 covered workers in 2025 [4] and the metropolitan area 177,999, a total the state labor agency builds with Rock County, Minnesota inside it [5]. The Bureau of Labor Statistics put Minnehaha County at 138,476 employed in March 2026, with 10,147 establishments, and Lincoln County at 30,041 employed [7].

Pay and the cost of staff

Wages bear on a dealership twice, as a cost and as buying power. The metropolitan area's average annual pay was $66,768 in 2025, and retail trade paid $41,028 [5]. Minnehaha County averaged $66,906 and Lincoln County $69,492 [6]. In the first quarter of 2026 the average weekly wage was $1,369 in Minnehaha County and $1,387 in Lincoln County, against $1,211 for the state [7]. A salesperson on commission and a technician both earn more than the retail average, which is why the model carries $58,000 a year per employee before payroll costs.

Growth, and the permits that follow it

The city issued 5,615 permits in 2025 with a total valuation of $1,327,437,573, which SDPB reports as the fifth straight year above $1 billion [2][1]. The count of permits fell from 6,183 in 2024 [2]. New single-family permits were 357, the lowest in ten years according to the same report, town house units were 403 and multifamily units 1,168 [2][1]. The city's dwelling-unit total was 1,999, below its ten-year average of 2,552 and below the 2,150 of 2024 [2]. The county series from the Census Bureau, relayed by the St. Louis Federal Reserve, shows Minnehaha County with 2,044 housing units in 2025 and Lincoln County with 232, down from 2,421 and 268 in 2024 [11][12]. The reading for a dealer is a market that is still adding households but at a slower pace than a few years ago: the county's count was 4,747 in 2022 and 2,863 in 2023 [11].

Commercial activity

New commercial buildings were valued at $711.6 million in 2025, with another $314.2 million for additions, renovations and remodels [2]. Manufacturing construction alone came to $84.0 million, and 17 commercial projects were valued at $10 million or more [2]. Sioux Falls Regional Airport enplaned 754,686 passengers in 2025, up 5.9% on 2024, and handled 46,696,248 pounds of freight [15]. The metropolitan area's gross domestic product was $30,084.975 million in 2023, the last year before the series was discontinued [18]. None of these figures predicts vehicle sales. Together they describe a regional hub with a diverse payroll, which is the demand base a store that sells to employed households relies on.

Housing and household wealth

Home equity supports trade-in and down-payment behaviour. The median listing price in the Sioux Falls housing market stood at $362,200 in September 2026, and the Federal Housing Finance Agency index for the area was 365.85 in the second quarter of 2026, against 357.04 a year earlier [16][17]. Both are relays: Realtor.com's definition of the area and the agency's index, each carried by the St. Louis Federal Reserve. They are context, not a forecast of vehicle demand. The apartment survey for January 2026 found 6.62% of 14,409 surveyed units vacant, 954 in all, against 5.68% in the previous survey, with 270 multifamily units permitted through February [14]. A softer rental market eases the pressure on household formation, which is one more reason the model does not lean on the housing boom to fill its showroom.

Context from the Census register

Estimates for the two counties from the Census Bureau and the Bureau of Economic Analysis follow in the table below. Other vintages and definitions explain why they differ from the figures above.

Lincoln County's median household income is well above Minnehaha County's, and its per capita personal income is higher too [21][23]. Sioux Falls spans the two counties, so a site near the county line draws on the higher-income households of Lincoln as well as the denser neighborhoods of Minnehaha. The next section counts the dealers who already compete for those households.

The subject is a hypothetical site of about 3.0 acres in the 57th Street and Veterans Parkway growth area of Sioux Falls. The area is named to fix a place on the map: the research records a permit of more than $42 million for a senior-living community, the year's largest, near that intersection [14], a sign of new building there, and no parcel has been identified. Its zoning district, utility territory, flood status and traffic count are conditions to confirm. The research found no traffic count for any Sioux Falls arterial, no impact fee schedule and no dealer licensing rule.

Land and the commercial market

The commercial real estate record is from the Bender Commercial Real Estate Services outlook, relayed by SiouxFalls.Business. It reported retail vacancy at 8% at the end of 2025, down from 9% a year earlier, with nearly 1 million square feet of retail added over five years [13]. Industrial vacancy was 4.8%, up from 3.7% in 2024 and the highest in more than 20 years, with net absorption of 680,000 square feet against 1.1 million square feet of new construction [13]. Industrial sales volume reached a record $168 million [13]. Sales volume rose 76% for retail, 44% for industrial and 24% for office [13]. Unimproved land sales totalled 1,120 acres, the second-strongest year on record, with 388 of them in Harrisburg [13].

A dealership competes for land with retail pads on one side and light industrial users on the other. The 8% retail vacancy rate [13] says a buyer has choices among existing buildings; the industrial figure says developers are still building, so a dealer who needs a lot with a shop is shopping where speculative supply is plentiful. The research holds no price per acre or per square foot for any of that land. The model carries a round land figure, $1,400,000, as an assumption, and an appraisal of the real parcel replaces it.

Construction cost

The only construction cost in the research is the city's permit valuation: the average new single-family dwelling was valued at $321,594 in 2025, with an average size of 1,572 square feet, and the 2024 average was $265,912 [2]. That is a residential valuation, and a shop and showroom shell is a different building, but it is the only local anchor. The model carries $190 per square foot and a general contractor's bid replaces it.

Taxes and licensing

South Dakota cut its state sales tax rate to 4.2% from 4.5% on July 1, 2023, under a measure that sunsets on June 30, 2027 [19]. The research found no 2026 action on the sunset. How the state taxes vehicle sales, the dealer licence fees and the county property tax levy on a dealership are not in the research and are lender conditions. The model's property tax line is a placeholder rate of 1.50% of cost.

Services and flood status

Electric, gas, water and sewer providers, the stormwater and detention requirements for a paved display lot, and the FEMA flood panel for the parcel are not in the research. A dealership paves most of its site, so the stormwater design carries real cost, and the site work allowance in the model is high for that reason.

Payroll with costs is the largest operating line. The model staffs the store with 21 full-time equivalents in the stabilized year at $58,000 each before a payroll-cost load of 18.0%, rising by 3.0% a year. The pay figure sits between the metro retail trade average of $41,028 and the Minnehaha County average of $66,906 [5][6], on the logic that salespeople and technicians earn above a retail clerk and below the all-industry average once the lowest-paid porters and detailers are included. The first quarter of 2026 statewide weekly wage rose 4.2% over the year [7], so the model's 3.0% is modest and the sensitivity table does not test it. An owner-operator compensation line of $120,000 is added because a lender normalizes owner pay before it counts coverage.

Floor plan interest is the dealership-specific cost. The store carries about 60 days of vehicle inventory on a floor plan line at 8.50%, which is Prime of 7.00% on the October 9, 2026 H.15 release [27] plus a spread. The inventory is financed outside the SBA project. The lender must settle how the floor plan lender's lien on the vehicles sits alongside the bank's and the CDC's liens on the real estate and equipment, and the research cannot settle it. The cost of the inventory itself is in cost of sales.

The remaining lines are advertising at $350 per vehicle retailed, utilities, repairs, supplies and fees at $230,000 in Year 1, insurance at $70,000 and property tax at 1.50% of cost. Operating costs move from $1,831,120 in Year 1 to $2,556,784 in Year 3. The model includes no vehicle inventory tax, no dealer licence fee and no sales tax effect, because the research found none of them; each is a lender condition. Net operating income runs from ($110,470) in Year 1 to $389,816 in Year 3, about 1.9% of revenue, which is the thin margin of a vehicle retailer, whose revenue is dominated by the price of the vehicle itself.

Three parties fund a 504 project, and the rules in force from October 1, 2026 (SOP 50 10 8.1 with Technical Policy Updates) [25] put the bank's first lien at half of project cost, the debenture at Third Party Lender 50%, debenture 40%, borrower 10%; debenture 35% at a 15% contribution and 30% at 20% [25]. A new business, one with two years or less of operation, contributes at least 15% [25]. The SOP defines a special purpose property as a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built [25]. A showroom and shop with above-ground lifts is a general commercial building by that test. The higher tier, 20%, therefore does not apply, but the CDC and the lender decide that on the plans, which makes the property type a lender condition.

The debenture at both structures sits well under the $5 million limit. The sponsor's 10.0% proposal fails the equity tier, so the engine restructures it to 15.0% and then looks for a share at which Year 2 coverage reaches the floor. It finds none, because the bank's half of cost does not shrink as equity rises, and the restructured structure stays at 15.0%. The 504 upfront fee on the debenture is 0.50% under the fiscal year 2027 schedule [26], added to project cost.

The debenture rate of 6.95% is a planning rate, because the research for this state holds no debenture pricing and the CDC sets the actual rate at the debenture sale. The bank rate of 7.50% is an assumption too, a half point over Prime of 7.00% [27], with the third-party spread capped by SBA at 6% over New York Prime [25]. The bank's term and amortization are assumed equal to the debenture's, and the bank may set a shorter maturity that would raise debt service.

A 504 loan is also tied to jobs. The program's job standard is $95,000 of debenture per job for a project that is not a small manufacturer or an energy project. The store's headcount in the model, 21 full-time equivalents in the stabilized year, is the sponsor's staffing plan, and the CDC will test it against the debenture. That arithmetic is a lender condition because the headcount is itself an assumption.

The 504 coverage standard is 1.15x [25]. A new business has no history, so the engine reads Year 2. As proposed, at 10.0% equity, debt service is $548,483 and Year 2 coverage is 0.45x. The proposal fails the equity tier and the coverage floor, and it passes the debenture size test.

As restructured, the engine raises the contribution to the new-business tier and searches higher shares for one that clears the floor. At 15.0% equity, debt service falls to $518,710 and Year 2 coverage is 0.48x. Coverage rises to 0.75x in Year 3 and 0.83x in Year 5, and the floor is not met in any year. The equity tier is met, the debenture is within the size limit, and the coverage test fails.

The result is a finding about this store as sized, not about dealerships in general. A smaller building, a leaner payroll or a steeper ramp would change it, and the break-even section says how much volume would be needed on this one. A lender should read the sponsor's own sales history against these assumptions before anything else. Feasibility Study Company can run the same coverage test for your store, with your own sales data in place of these assumptions.

Used-vehicle volume shifts by up to a fifth down the rows, and front-end gross profit per vehicle changes across the columns. Every figure is Year 2 coverage for the restructured loan, from -0.48x at the lowest to 1.61x at the highest. A cell under the floor is a combination in which the structure fails.

The two drivers are the least certain. Volume is a ramp the research cannot support, and gross profit per vehicle is a planning figure. The table shows how far both would have to improve before the test year reaches the floor, which is why the lender conditions ask for the sponsor's actual dealer history and for a sales ramp tied to named competitors.