There are a number of options for funding car dealership stock. Each option has its benefits depending on your stock funding needs, the speed at which you require funding and your car dealership’s financial status.
Stock funding, also known as dealer finance or unit stocking, is a loan given to dealerships to acquire vehicle stock. There are a variety of methods for stock funding, of which a dealership may choose to use one or a variety depending on their needs and cashflow.
The main reason car dealerships require stock funding is to increase the vehicle stock on their forecourts without having to self-fund the cost. Having sufficient upfront funding can be difficult for dealers and can compromise cash flow.
There are three main options for car dealer stock funding: car manufacturers, banks and independent lenders.
For car dealerships looking to stock their forecourt with new vehicles and make wholesale acquisitions, stock financing can be done directly with car manufacturers. Unit stocking finance can be a form of credit with car manufacturers. Borrowing against the car dealer’s assets, it helps avoid cash being tied up in stock.
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.
Stock financing with banks is similar to car manufacturer financing. It can be used for new or second-hand vehicles, of all varieties, including: cars, motorcycles, caravans and light commercial vehicles.
Funding is secured one of two ways:
Following the sale of the vehicle/s, a dealer will reimburse the bank for the loan.
Stock financing with a bank will only be approved following full credit and financial assessments.
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.
Banks can offer traditional funding for dealers but 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.
Independent lenders can provide stock funding for new or used vehicles. Stock finance through an independent lender will, like with a bank, have an approved credit limit that you can use for stock funding. This can range from £50,000 to £1,000,000, and can even extend to a £1,000,000+ facility limit.
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.
This will depend on the lender and what has been set up in advance. The quickest independent lenders will typically take 24-48 hrs. As mentioned, LE Capital can offer 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).
Stock funding repayment periods are set based on various factors, namely:
There are many questions car dealers should ask themselves when considering their stock funding options and the right choice will depend on numerous factors. Ultimately, they should aim to match their most important criteria with the available stock funder.
For example, if you want fast funding, an independent lender will be the best choice. If you are seeking wholesale funding, you may get a good deal with a bank.
What are the interest rates, fees, penalties etc? Are there hidden fees that may affect profitability? Banks might offer lower interest rates but with stricter terms, while independent providers like LE Capital will probably offer higher rates but with more flexibility and other benefits. Comparing the total cost is essential.
How important is personalised support for my dealership? Independent providers tend to offer more tailored and personable support.
How flexible are the repayment schedules offered by lenders? How long is the repayment period? Based on your cash flow and stock sale expectations, how long do you need and how long can each lender offer you? Finding the best match will help guide you to the right option.
We offer superfast stock finance to both independent and franchise dealerships. Get in touch to discuss your needs or to arrange stock financing.
