Case Study · Texas · Auto Dealership · SBA 504
Auto Dealership Feasibility Study, Texas — An SBA 504 Worked Case
This is how our independent feasibility study company and dealership feasibility consultant team analyzed a ground-up franchised automobile dealership — showroom, service drive, and owner-occupied real estate — underwritten to an SBA 504 credit, from area-of-responsibility vehicle demand and fixed-operations absorption through the global debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set on an auto row in a fast-growing major Texas metro.
A new franchised point on a Texas metro auto row.
A dealer principal came to our feasibility study company with a ground-up franchised automobile dealership and an SBA 504 lender that needed the projected cash flow independently tested before it would commit to the real-estate financing. The subject is a new sales-and-service point awarded by a mainstream, volume franchise on an established auto row in a fast-growing outer submarket of a major Texas metro. The build program is roughly a 40,000-square-foot facility — showroom, sales offices, and parts department — with more than twenty service bays and a body shop, on a five-acre parcel with highway-facing display frontage.
A dealership is underwritten as an operating business, not as passive real estate, and its value is component-additive: blue sky, plus real estate valued separately, plus inventory, plus fixed assets.6 That distinction sets the whole engagement. The SBA 504 finances only the owner-occupied real estate; the vehicle inventory is floor-planned by a separate lender that holds a first-priority lien on it, and the blue sky is capitalized outside the 504 entirely.911 So the lender's question is not merely “what is the dirt worth” but “can this specific store, at this location, under this ownership, generate the global cash flow to service this specific real-estate debt.” Our scope was the independent demand, competition, and global debt-service analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the store, brand, auto row, and parties are composited, not a real named borrower, address, or completed transaction.
Area-of-responsibility vehicle demand, not a traffic count.
Dealership demand starts with the brand’s assigned area of responsibility and its new-vehicle registrations, not a capture rate applied to cars driving past. The subject’s AOR is a growing outer-metro territory with a rising registration base and a high truck-and-SUV mix that favors the franchise.
The value driver is unit throughput across four departments, and it is set by brand allocation and area demographics, not raw exposure. The national picture frames the store: NADA counted 16,990 franchised dealers in 2025 selling 16.2 million new units, but the economics have normalized sharply — average gross per new vehicle fell 33.0 percent in 2024 to $2,247, so the durable profit now comes from used vehicles, finance and insurance, and above all fixed operations.45 A new point in a growing Texas AOR, with the brand’s allocation behind it and an under-served service population, supports a stabilized run rate near 1,020 new units and 820 used units a year. On that unit base, and at through-cycle department gross — about $2,250 front on new, roughly $1,400 front on used, and around $2,475 of F&I per vehicle retailed — the model builds a defensible departmental gross profit, then leans on fixed operations as the stabilizing engine rather than on new-vehicle volume.56
| Demand driver | Basis | Supported figure |
|---|---|---|
| AOR new-vehicle registrations | Growing outer-metro territory; brand allocation4 | Rising captive base |
| New-vehicle units | AOR share × registrations; high truck/SUV mix | ≈ 1,020 units/yr |
| Used-vehicle units | ~0.8× new; trade-cycle and reconditioning capacity | ≈ 820 units/yr |
| F&I penetration | ~$2,475 gross per unit retailed6 | ≈ 1,840 units financed |
| Fixed-operations throughput | 20+ bay service drive plus body shop; absorption ramp8 | ≈ $6.0M parts & service gross |
Unit and department logic grounded in NADA volumes and Presidio-NCM and Haig department-gross benchmarks; see sources 4, 5, 6, and 8. Figures are illustrative of the engagement type.
Intrabrand density first, then the auto row.
The competitive read that matters most is intrabrand: how close the nearest same-brand store sits, because state dealer-franchise law protects an existing dealer’s market against a new same-brand add-point. The adjacent franchises on the auto row are less rivals than shared traffic.
| Competitor | Franchise / type | Scale | Distance | Read |
|---|---|---|---|---|
| Competitor A | Same brand (intrabrand) | ~1,100 units/yr | 14 mi | Nearest same-brand point; defines AOR edge, add-point protected |
| Competitor B | Same brand (intrabrand) | ~900 units/yr | 22 mi | Cross-metro, minimal territory overlap |
| Competitor C | Adjacent import franchise | Auto-row neighbor | 0.3 mi | Complementary cross-shop traffic |
| Competitor D | Adjacent domestic franchise | Auto-row anchor | 0.5 mi | Destination draw, lifts corridor visits |
| Competitor E | Independent used superstore | Used-only | 2.1 mi | Used-vehicle price competitor |
| Competitor F | Challenged-brand franchise | Trailing allocation | 3.6 mi | Losing volume, weak defender |
Competitive set surveyed for the engagement; anonymized. Intrabrand spacing and add-point protection are governed by state dealer-franchise statutes, not by drive-by traffic.
The nearest same-brand store sits fourteen miles away, at the edge of the AOR, which is exactly the point: because the brand awarded a new franchise here, the territory is registration-supported and not cannibalized by an existing same-brand dealer next door. The adjacent franchises on the auto row — a different import line and a domestic anchor within half a mile — are complementary rather than competitive; auto rows concentrate cross-shopping traffic and make the corridor a destination.6 A rigorous study does not stop at the standing set: the buy-sell market set records in 2025, with 458 transactions across 688 franchises, so announced relocations and open points are scanned so the capture forecast is not quietly overstated.7 Here the read is a genuinely under-served point — registration growth is outrunning local same-brand capacity, and the subject fills the gap rather than splitting a saturated territory.
Texas macro: growth, trucks, and a dealer-protective regime.
The state backdrop is a tailwind for a franchised store, reinforced by franchise law. Texas is the nation’s second-largest economy at roughly $2.9 trillion of GDP, and more than 90 percent of Texans live in metropolitan counties.
Texas held about 31.3 million residents as of July 2024 and continues to lead the country in in-migration; the Houston metro alone added more than 198,000 residents in a single year, and exurban cities on the metro edges — Princeton, in the Dallas metro, grew 30.6 percent in one year to become the fastest-growing US city — are among the fastest-growing in the nation.1 That rooftop and household growth on the outer ring, with a high truck-and-SUV mix, is exactly the registration engine a new franchised point needs. Decisively for dealership value, Texas bars direct-to-consumer auto sales and maintains a strong dealer-franchise statute, so the franchise and its blue sky sit on a protected legal foundation rather than facing factory-owned competition.12 The state also carries no personal income tax and no general Certificate of Need regime.2
Two recent changes cut in the sponsor’s favor. The Texas business personal property tax exemption rose to $125,000 per location effective January 1, 2026 — a real benefit for a store carrying heavy shop equipment and parts — and the SBA’s combined 7(a)-plus-504 ceiling doubled to $10 million in mid-2026, enlarging bankable deal size.3 Texas also ranks second nationally in SBA 7(a) volume, is served by six SBA district offices, and is covered by statewide Certified Development Companies that originate 504 debentures, so the 504 channel here is deep.3 The offsetting reality is cost: a purpose-built dealership facility is capital-intensive and specialized, so the feasibility test turns on whether stabilized global cash flow covers a leveraged real-estate basis — not on optimistic top-line growth.10
Why the point captures the territory.
Household income, household formation, and vehicle mix all point the same direction, and the auto-row location converts that demand into showroom and service visits.
The area of responsibility carries a median household income comfortably above the metro line and a household base growing several points a year, which means trailing registration counts understate the captive market — a common exurban distortion a careful study corrects for rather than extrapolates.1 The truck-and-SUV skew of the territory matters: it lifts both average selling price and the parts-and-service content of each vehicle in operation, which is where the durable profit sits.5
Location does the rest. An established auto row concentrates buyers who arrive to cross-shop several franchises in one trip, and highway-facing display frontage gives the new point the visibility a service business needs to build its drive. The specialization cuts both ways, though: a purpose-built dealership — showroom glass, service bays, alignment racks, a body-shop paint booth — is not easily re-tenanted, so the real estate carries a going-dark question a lender weighs against the going-concern cash flow, and the study addresses it head-on rather than assuming an easy re-lease.10
The SBA 504 structure.
The 504-eligible project cost — the owner-occupied real estate only — lands at $18.0 million. The 504 is purpose-built for fixed assets, which is why an owner-occupied, special-purpose dealership facility routes here for its real estate while the inventory and blue sky are financed elsewhere.
| Cost component | Amount |
|---|---|
| Land (~5-acre auto-row parcel) | $4.00M |
| Dealership building (showroom, offices, parts; ~40,000 sf) | $8.50M |
| Service & body-shop build-out (bays, alignment, paint booth) | $3.20M |
| Site work, display-lot paving, drainage & lighting | $1.50M |
| Fixed equipment & real-property fixtures (lifts, in-ground systems) | $0.50M |
| Soft costs, architecture, permits & contingency | $0.30M |
| Total real-estate project cost | $18.00M |
| Item | Figure |
|---|---|
| Bank first mortgage (50%) | $9.00M |
| CDC / SBA 504 debenture (30%) | $5.40M |
| Borrower equity injection (20%) | $3.60M |
| Total project sources | $18.00M |
| Bank term / rate | 25-year amortization / ~9.5% |
| Debenture term / rate | 25-year / ~6.5% fixed |
| Total annual debt service | ≈ $1.38M |
Structure per SBA 504 conventions under SOP 50 10 8: bank first mortgage, CDC/SBA debenture, and borrower equity; owner-occupancy 60% for new construction; debenture within the ~$5.5M cap. See sources 11 and 12.
The equity injection sits at 20 percent, not the baseline 10 percent, and that is deliberate: SBA policy escalates the required injection for a project that is both special-purpose and, as a ground-up new point, effectively a start-up — commonly to 15 to 20 percent or more — which mechanically holds the CDC/SBA debenture to 30 percent of cost rather than the standard 40 percent.12 At $5.40 million the debenture also sits within the roughly $5.5 million ceiling, so the structure works within one 504 facility.11 On a 25-year amortization, the bank first mortgage at about 9.5 percent and the debenture at about 6.5 percent fixed together carry annual debt service near $1.38 million — the number the projected global coverage has to clear. Because the store is owner-occupied, the SBA measures global cash flow: the operating company and the real-estate entity are combined, so it is the dealership’s going-concern cash flow — not a hypothetical market rent — that services this debt.1112 One scope point matters here: as a new point, the operating company’s tangible net worth and net income sit within the 504 size standard (tangible net worth under $20 million), which is precisely why the SBA fits this store where it does not fit a large established franchise.11
Feasible and bankable, on global coverage the credit can document.
The stabilized model builds departmental gross from four engines — new, used, F&I, and fixed operations — nets full dealership operating expense, and carries the global coverage to a 1.40x stabilized DSCR on a graded ramp.
| Line | Basis | Amount |
|---|---|---|
| New-vehicle gross | ~1,020 units × ~$2,250 front gross5 | ≈ $2.30M |
| Used-vehicle gross | ~820 units × ~$1,400 front gross5 | ≈ $1.15M |
| F&I gross | ~1,840 units retailed × ~$2,4756 | ≈ $4.55M |
| Fixed-operations (parts & service) gross | Service drive + body shop; ~70% absorption8 | ≈ $6.00M |
| Total departmental gross profit | New + used + F&I + fixed operations | ≈ $14.00M |
| Total operating expense | Personnel, advertising, floor-plan interest, occupancy ex-debt, admin | ≈ ($12.07M) |
| Global cash flow available for debt service | Gross profit less operating expense | ≈ $1.93M |
Department-gross bases per Presidio-NCM (new ~$2,247, used ~$1,400) and Haig (F&I ~$2,475–$2,534); fixed-operations absorption near 70% sits above the ~64–66% industry average and below NADA’s 115% target. See sources 5, 6, and 8.
| Year | Stage | Global cash flow | 504 debt service | Global DSCR |
|---|---|---|---|---|
| Year 1 | Ramp (allocation & service drive building) | ~$1.52M | ~$1.38M | 1.10 |
| Year 2 | Building | ~$1.73M | ~$1.38M | 1.25 |
| Year 3 | Stabilized | ~$1.93M | ~$1.38M | 1.40 |
Global DSCR computed as combined operating-company-plus-real-estate cash flow divided by the total 504 debt-service obligation. See sources 11 and 12.
The stabilized 1.40x global coverage is the figure the lender documents, and it is built on the store’s durable engines — fixed operations, F&I, and used vehicles — not on new-vehicle volume, which normalized 33 percent lower in 2024 and cannot be leaned on.5 By Year 2 the store already covers fully amortizing debt service at 1.25x. The Year 1 figure of 1.10x is the ramp year: a new point takes time to earn its brand allocation, fill its service drive to a ~70 percent absorption rate, and season its used and F&I operations, so the coverage is deliberately graded rather than modeled at mature-store performance on day one. Underwriting to the anomalous 2021–2022 gross, or to near-zero floor-plan interest, is one of the most common ways these pro formas fail review; the ramp here is stressed against both floor-plan-rate and new-gross downside.9
On the equity side, total sponsor capital at risk is roughly $5.6 million — the $3.60 million real-estate injection into the 504, plus about $2.0 million for blue-sky establishment, net inventory equity above the floor-plan line, and working capital. That equity earns growing levered free cash flow — roughly $0.14 million in the ramp year, building to about $0.55 million once stabilized and net of a real-estate capital reserve. The exit is valued on a going-concern basis, component by component: blue sky at a through-cycle multiple near 4.75x of normalized adjusted pre-tax earnings, plus the owner-occupied real estate appreciated at roughly 3 percent a year (a basis consistent with automotive net-lease pricing near a 6.2 percent cap), plus recovered net working capital, less the outstanding 504 balance and selling costs.610 That combination implies net equity near $19 million at a Year-10 sale and, blended with the interim cash flow, an illustrative levered equity IRR of about 18 percent over a 10-year hold.
Verdict: financially feasible and bankable. On independently derived AOR demand, a stabilized 1.40x global DSCR built on fixed operations and F&I rather than new-vehicle volume, and a ~18% levered equity IRR, the projections support the SBA 504 credit on the owner-occupied real estate.
Independent demand, competition, absorption, and global-DSCR stress.
The engagement was scoped the way a credit committee reads it. As an independent dealership feasibility consultant, our role is to test the sponsor’s projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We derived new-vehicle demand from area-of-responsibility registrations and brand allocation, not a flat share of a traffic count, then modeled the used, F&I, and fixed-operations departments on a graded ramp to a defensible ~70 percent absorption rate. Blue sky was framed on brand-specific, normalized earnings rather than the unrepeatable 2021–2022 peak.
The coverage analysis was then stress-tested. We ran the global DSCR against floor-plan-rate and new-gross downside — the two variables a store is most exposed to — to confirm the credit still holds when interest rises or front-end gross compresses. One scope boundary is worth stating plainly: as the feasibility consultant, we reference, but do not perform, the Phase I environmental site assessment, and a Phase II is often warranted — service bays, a body-shop paint booth, solvents, and any underground tanks make a dealership a higher-environmental-risk property that a separate environmental professional evaluates.10 The going-concern value allocation itself is a Certified General appraiser’s engagement that runs in parallel to the study.12 That combination — independent demand, competition, absorption, and a stressed global DSCR — is what lets the lender rely on the file.
Representative engagement
This is an anonymized, illustrative worked example of our methodology, built on market data current to 2026; figures are representative of a typical engagement of this type and do not depict a specific client, site, or completed transaction.
Underwriting a Texas auto dealership for an SBA 504 loan? Start with the feasibility study.
Feasibility Study Company prepares independent auto dealership feasibility and market studies for SBA 504 and conventional real-estate credits, built to the global coverage standard your lender must document. A methodology briefing walks through the area-of-responsibility demand, brand allocation, fixed-operations absorption, and global DSCR analysis behind a case like this one, calibrated to your brand, market, and facility.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Texas, Auto Dealership, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- U.S. Census Bureau, Vintage 2024 Population Estimates (Texas population ~31.3 million as of July 1, 2024; Houston metro added more than 198,000 residents in 2023–24; Princeton, in the Dallas metro, grew 30.6% in one year to become the fastest-growing U.S. city; city-growth rankings released May 2025), as compiled in the firm’s Texas market analysis.
- Texas Comptroller of Public Accounts, Texas economy and GDP data (Texas the 2nd-largest U.S. economy, ~$2.9 trillion GDP; 90%+ of Texans in metropolitan counties; no state personal income tax); National Conference of State Legislatures on Certificate of Need (Texas repealed its CON program in 1985 and has no general CON law).
- U.S. Small Business Administration, Texas district office directory (six district offices; Texas ranks #2 nationally in SBA 7(a) volume) and FY2025 lender data; statewide Certified Development Companies originating 504 debentures; SBA combined 7(a)-plus-504 loan-cap increase to $10 million effective July 4, 2026; Texas business personal property tax exemption raised to $125,000 per location effective January 1, 2026 (Texas Proposition 9 / HB 9).
- NADA, NADA Data 2024 and 2025: 16,990 franchised light-vehicle dealers in 2025, 16.2 million new units, total franchised sales above $1.3 trillion, and the fixed-operations share of dealership gross profit.
- Presidio-NCM Average Dealership Performance Benchmark, full-year 2024 (via Digital Dealer, January 2025): gross per new vehicle retailed down 33.0% to $2,247, brand dispersion (luxury $5,679, domestic $1,952, import $1,699), and used-vehicle front-end gross near $1,400.
- Haig Partners, The Haig Report (Q1–Q3 2025 basis): national-average blue-sky multiples by brand (roughly 8–10x for Porsche and Lexus down to 3–4x for Nissan and Stellantis) and F&I gross of roughly $2,500–$2,534 per vehicle retailed; blue sky valued separately from real estate and inventory.
- Kerrigan Advisors, The Blue Sky Report and Kerrigan Blue Sky Index (2025 Annual and Q1 2026): 458 buy-sell transactions representing 688 franchises in 2025, a blended multiple near 6.3x, and an Index of 176 at year-end 2025 rising to 178 in Q1 2026.
- NADA Slide Guide (fixed-operations absorption target of 115% against an industry average of roughly 64–66%); Optimum dealership benchmarking, Q4 2024 (service absorption 66.3%); Cox Automotive, 2026 Fixed Operations study (average dealer fixed-ops revenue $9.23 million in 2025, 13.2% of total dealership income).
- OCC, Comptroller’s Handbook (Floor Plan Lending), and FDIC Floor Plan Lending Core Analysis Procedures: the floor-plan lender’s first-priority lien on inventory (advancing ~95–100% of invoice) and the structural subordination of every other lender on that asset; WardsAuto (average dealer floor-plan expense ~$70,000 per month) and Optimum (net floor-plan expense per new vehicle up 129% year over year to $395 in Q4 2024).
- Avison Young (late 2024): automotive net-lease cap rates (~6.2%); net-lease and dealership real-estate research (CBRE Dealership Capital; Investment Grade) on purpose-built facility specialization, the going-dark and re-tenanting question, and Phase I/II environmental diligence (service bays, body-shop paint booths, and underground storage tanks).
- U.S. Small Business Administration SOP 50 10 8 (effective June 1, 2025) and 13 CFR 120.160(b): a feasibility study is discretionary but expected for special-purpose properties and ground-up/startup projects; owner-occupancy of 51% (existing) or 60% (new construction); the 504 structure of a bank first mortgage, a CDC/SBA debenture, and borrower equity; 504 fits owner-occupied dealership real estate under the alternative size standard (tangible net worth under $20 million), with the debenture within the ~$5.5 million cap.
- SBA 504 program terms and CDC guidance (Growth Corp and comparable): standard 10% equity injection escalating to 15–20% for projects that are both special-purpose and startup; global (operating-company-plus-real-estate) cash-flow coverage for owner-occupied businesses; going-concern value allocated across land, building, equipment, and intangibles by a Certified General appraiser; Texas dealer-franchise law bars direct-to-consumer sales, protecting the franchise and its blue sky.