Car Dealership Stock Funding Options

What is Stock Funding?

Stock funding, also known as unit stocking finance or stock finance, is a specialised loan or credit line available to car dealerships so they can acquire vehicle stock. Stock funding frees up cash to purchase cars from car auctions, part-exchanges or wholesale suppliers.

Why do Car Dealers need Stock Funding?

Used car dealerships often rely on stock funding because the upfront cost of purchasing multiple vehicles can put pressure on cash flow. Stock finance enables dealerships to buy inventory for their forecourt without having to fund the full cost themselves, which can be challenging when relying solely on their own capital.

Stock Funding Options

The primary stock funding options available to dealers are: car manufacturers, banks and independent lenders.

1. Dedicated Stocking Plans From Independent Lenders

Through independent lenders, car dealerships can secure an approved credit limit to fund their vehicle stock purchases. These dedicated stocking plans are designed specifically for buying vehicles but can be used for both new and used cars. The funding can be used against invoices for vehicles you purchase, which are then repaid once the vehicles are sold.

Stock finance through an independent lender will give you a pre-approved credit limit, which can range from £50,000 to £1,000,000. Depending on your dealership’s financial circumstances and history, this can even extend to a £1,000,000+ facility limit.

Not all independent stock finance providers will fund 100% of a vehicle’s purchase price. Some agreements, for example, may only cover up to 80% of the invoice value. At LE Capital, we finance 100% of the invoice, including vehicle costs, delivery charges and associated fees.

When you sell a vehicle, you will be required to pay off the portion of the loan that was used to purchase that vehicle (terms for payment will differ depending on the provider). If you don’t sell a vehicle within the permitted time set by the independent lender, normally around 120-160 days, you will be required to repay the whole amount or a proportion of the capital outstanding – depending on the terms of the agreement. LE Capital has a maximum 240 day repayment period.

Often independent lenders can provide fast funding for dealers. At LE Capital, we offer unique stock financing by providing same day payouts. Other providers can take from 24 hours to 48 hours.

Many car dealerships will consider independent lenders when the interest-free period is going to be up on stock financed from manufacturers, in an effort to get the best deal and avoid paying interest.

2. Specialised Business Loans & Financing From Banks

Stock funding from a bank works in a similar way to funding from an independent lender. Dealerships are typically required to undergo full credit and financial assessments before being approved for a specialised line of credit or business loan.

Bank funding can offer greater flexibility, allowing dealerships to use funds for purposes such as purchasing stock in bulk, making forecourt improvements or meeting other business needs. However, specialised business loans are most commonly used to finance vehicle purchases. These can include both new and used vehicles across a range of categories, including cars, motorcycles, caravans and light commercial vehicles.

Banks will assign you a credit limit that you can use for unit stock financing, which will vary depending on your assets and other factors. Unit stock financing from a bank will have a maximum agreement period of 180 days. Following the sale of the vehicle/s, a dealer will reimburse the bank for the loan.

With stock funding from a bank, you can secure a loan in one of two ways:

• against individual vehicles
• as a floating charge over your existing vehicle stock

Banks do offer traditional funding for dealers, however, often this is only for large stocks of used vehicles. Wholesale funding from banks is also an option, pending initial checks and regular reviews that ensure specific criteria are met on the side of the dealers. What this criteria is will depend on the bank.

3. Financing From Car Manufacturers (For Franchised Dealerships)

Franchised car dealerships can stock their forecourts with new vehicles and make wholesale acquisitions directly from car manufacturers. Unit stocking finance provided by manufacturers can take the form of credit secured against the dealership’s assets, helping to avoid cash being tied up in stock.

It is important to note that financing directly with the manufacturer comes with time limits. Often there is an interest-free period, which encourages dealers to sell the car to avoid losing out on profit when paying back the manufacturer. Unit stock financing will have a typical time limit of 90 days, after which the dealer may be forced to sell or buy back the vehicle.

How long does Stock Funding take?

This will depend on the lender and what has been set up in advance. First, you will need to get approval for stocking funding. While this process typically takes between 1-3 weeks, your chosen stock finance provider will usually notify you within 5 days if your application is being taken forward.

Once you have a line of credit or finance loan approved, the quickest independent lenders will typically take 24-48 hrs to approve stock funding. LE Capital offers faster stock funding. Our payment run times (when we payout funds to dealers to purchase vehicles) are at 1pm and 4pm each day Monday to Friday, with cut off times being 12pm and 3pm (one hour prior to the cut off, respectively).

How are Repayment Periods for Stock Funding set?

Stock funding repayment periods are set based on various factors, as follows:

• Lender’s Policies: Different financial institutions may have varying terms and conditions for unit stock financing.
• Dealership’s Creditworthiness: A dealership with a strong credit history might secure more favourable terms.
• Negotiated Terms: Specific terms may be negotiated between the dealership and the lender, allowing for flexibility in the repayment schedule.
• Vehicle Turnover Rate: Dealerships with a high turnover rate of inventory might have shorter repayment periods.
• Type of Vehicles: The terms might also vary based on whether the financed vehicles are new or used.

Choosing the Right Stock Funding Option

The right stock funding solution for your dealership will depend on a range of factors. Using the information above, consider the type of finance you need, how much funding you require and how quickly you need access to it. The aim is to find a funding provider that best meets your dealership’s key requirements.

For example, if speed is a priority, an independent lender may be the most suitable option. If you are looking for wholesale funding, a bank may offer a more appropriate solution.

Questions To Consider

What are the interest rates, fees and penalties? Are there any additional charges that could affect profitability?

Banks may offer lower interest rates, but these are often accompanied by stricter lending criteria and terms. Independent providers, such as LE Capital, may offer greater flexibility and additional benefits. Comparing the total cost of funding is essential when determining the most suitable option for your dealership.

How important is personalised support for my car dealership?

Independent stock finance providers often offer a more tailored and hands-on service. Banks, by comparison, can take a more standardised approach, providing support and guidance within a less flexible framework. Consider the level of support your dealership needs when choosing a funding provider.

How flexible are the repayment schedules offered by lenders? How long is the repayment period?

Consider how much time you are likely to need to repay the funding and compare this with the repayment terms offered by different lenders. Choosing a funding solution that aligns with your sales cycle can help support healthy cash flow and minimise financial pressure. When assessing your requirements, use historical sales data wherever possible to ensure your projections are realistic.

Get in touch to arrange fast Stock Funding for your car dealership

We offer superfast stock finance to both independent and franchise dealerships. Get in touch to discuss your needs or to arrange stock financing.