Equity financing is an important part of operating any used car dealership, whether independent or franchised.
However, it can be a tough road to travel, so Vicky Gardner, Sales Development Manager of NextGear Capital, discusses some of the things dealers should think about before making a decision here.
What is equity financing and why is it something dealers should know?
Simply put, equity financing is a form of loan specifically designed to help dealers purchase used vehicles for resale.
It is an alternative to dealers using their own capital or more generic forms of lending, such as bank loans, to acquire stock for retail sale.
It’s something many dealerships have in their toolbox to help them fill their forecourts and streamline the way they buy.
How can a dealership use wholesale financing to grow?
Funding essentially does three things:
- By giving a dealer the ability to buy more shares, it fuels growth. We often see dealerships who partner with us quickly start selling 10/20/30% more vehicles than before.
- This can help dealers be more nimble by ensuring they are able to buy decisively when the opportunity arises. In a rapidly changing market and when prices are high, this can be a form of competitive advantage.
- This frees up money to invest in the business in other ways, be it facilities, marketing or staff. This can be transformational for some dealers.
Why might a dealer consider equity financing over other forms of financing?
One of the advantages of equity financing over, say, a bank loan is that you only pay for what you use when you need it.
With a loan, you borrow and receive the full amount immediately and repay it with associated interest over the life of the loan.
The monthly payment will be there whether you used that money or not.
With a storage plan, you only borrow when you finance a vehicle and only for as long as you have that vehicle on your forecourt. You pay the outstanding amount plus fees when you sell and that’s it.
And you can do it as many times as you want, with as many vehicles as your storage plan allows.
There are different types of storage plans, so how do they typically differ?
There are a lot of choices and it can be difficult to sift through and figure out which is best for your needs. Remember that not all dealers’ needs or preferences are the same.
The key things to know are that some products are “captive”; in other words, they can only be used at a specific source.
Some come with a reciprocal consumer credit expectation. This means that the lender requires a certain retail volume in exchange for wholesale terms.
Some finance only a percentage of the commercial value of the vehicle, while others finance the full amount plus associated costs, such as auction fees and freight charges.
With that in mind, what questions should a concessionaire ask a potential lender?
I would suggest dealerships ask their lenders for the following:
- What percentage of the vehicle is financed?
- For how long are these vehicles financed and what are the repayment terms?
- Can the facility be used to fund associated costs such as auction fees or transportation costs?
- Where can I buy vehicles?
- What support is available to me?
- How do I track my storage plan?
There are no right or wrong answers to any of these questions, but they will help you assess whether the product on offer does what you need it to.
How is a NextGear Capital storage plan limit determined?
Each NextGear Capital storage plan is tailored to the dealer and their needs.
We take our responsibility very seriously and have a very experienced team who will work with a qualified dealer to fully understand their business and ambition and determine an installation that is right for them.
In addition, we stay very close to them and adjust their plan as their needs evolve.
We have helped many dealerships grow their businesses successfully over the years using this approach.
What makes NextGear Capital different?
With NextGear Capital, we have created a financing product that gives dealers freedom and flexibility.
The main difference is that dealerships receive 100% financing regardless of their source.
We are also integrated with over 70 vehicle auctions and wholesalers where the total hammer price plus delivery and buyer’s costs can be paid directly.
If you buy from another source, including a parts exchange or private sale, 100% of Cap Clean or invoice price can be financed.
Talk to our team today – just make an appointment here or call 0343 50 60 600.