Dealers lean on Covid-19 recovery loans and overdrafts to keep forecourts stocked
One in four dealers has used short-term finance options such as government-backed Covid-19 recovery loans and overdrafts to pay for stock since reopening.
According to the latest dealer sentiment survey commissioned by NextGear Capital, since 1st June, 13% of dealers have used the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme to stock up their forecourts, while 22% have used an overdraft facility.
The number turning to overdrafts has risen sharply since NextGear Capital last polled dealers on their funding practices. In October 2018, just 9% cited overdrafts as a source of wholesale funding. Similarly, more dealers are currently using their own cash now versus late 2018 (78% vs 47%).
NextGear Capital has approved customer requests for an additional £27m since 1st June, while it funded some 10,000 vehicles worth £82m during lockdown itself.
Funding sources used by dealers to buy stock
since 1st June/reopening after lockdown
Liam Quegan, NextGear Capital’s managing director comments: "I think it’s a great thing that dealers have taken advantage of government support. These loans have allowed many to weather the storm and the cash injection has no doubt helped them keep pace with demand and their forecourts stocked over the last few months.
"However, the number using their overdraft facilities is concerning. Overdrafts are a short-term solution that can be expensive as the cost is incurred until the overall balance returns to black. It can be like chasing your tail to get back into a positive position so I would urge any dealers leaning heavily on their overdraft facility to review their options and consider alternative means of stock funding that better suit their longer-term requirements.
"It makes sense dealers are using their own cash to fund stock where they can. With costs under scrutiny and market conditions forcing many to buy from multiple sources, cash trumps most alternatives. But it doesn’t come without risk. Now more than ever, it’s vital to keep costs front of mind and maintain a very close eye on cash flow, remember that government schemes are unlikely to remain in place for much longer and to not bite off more than you can chew. Dealers with cash in the bank and access to funding that protects this position and affords them flexibility and choice will be best placed to navigate the challenges that lie ahead."
The survey also revealed that since 1st June, 22% of dealers have purchased stock with captive finance, 9% via a bank loan and the same number have used non-captive finance.
