There are various options open to dealers when it comes to stock funding
Vicky Gardner, Director of Sales Development at NextGear Capital discusses some of the things dealers should think about before making a decision.
Q: What is stock funding? Why is it something dealers should be familiar with?
A: Simply put, stock funding is a form of lending that’s specifically designed to help dealers buy used vehicles to sell. It’s an alternative to dealers using their own capital or more generic forms of lending, such as bank loans, to acquire stock for retail. It’s something many dealers have within their toolkit to help them fill their forecourts and streamline how they buy.
Q: How can a dealer use wholesale funding to grow?
A: Funding essentially does three things. Firstly, by giving a dealer the ability to buy more stock, it fuels growth. We often see dealers who partner with us quickly start selling 10/20/30% more vehicles than before. Secondly, it can help dealers be more agile by ensuring they are able to buy decisively when the opportunity arises. In a fast-moving market and when prices are high, this can be a form of competitive advantage. Finally, it frees up cash to invest in the business in other ways, be it facilities, marketing or people. This can have a transformational effect for some dealers.
Q: Why might a dealer want to consider stock funding vs other forms of finance?
A: One of the benefits of stock funding versus, say, a bank loan is you only pay for what you use, when you need it. With a loan, you borrow and immediately receive the complete sum and you’ll pay that back together with the associated interest over the full term of the loan. The monthly payment will be there whether you’ve made use of that money or not. With a stocking plan, you only borrow when you fund a vehicle, and only for the duration of you having that vehicle on your forecourt. You settle the outstanding sum plus the fee when you sell, and that’s it. And you can do this as many times as you like, and with as many vehicles as your stocking plan facility will allow.
Q: There are various types of stocking plans, how to they typically differ?
A: There is plenty of choice out there and it can be difficult to sift through and work out what’s best for your needs. Remember, not every dealer’s need or preference is the same. The key things worth knowing are that some products are ‘captive’; in other words, they can only be used at a specific source. Some come with an expectation of reciprocal consumer finance. This means the lender demands a certain volume of retail business in exchange for providing wholesale terms. Some only fund a percentage of the vehicle’s trade value, while others will fund the full amount plus associated costs, such as auction fees and transport costs.
Q: With that in mind, what are the questions a dealer should ask of a potential funder?
A: I’d suggest dealers ask the following of their lenders: What percentage of the vehicle is funded? How long are those vehicles funded for, 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
from? What support is available to me? How do I keep track of my Stocking Plan? There is no right or wrong answer to any of these questions, but they will help you assess if the product on offer, does what you need it to do.
Q: How is a NextGear Capital Stocking Plan limit determined?
A: Every NextGear Capital Stocking Plan is bespoke to the dealer and their needs. We take our responsibility very seriously and have a very experienced team who’ll work with a qualifying dealer to fully understand their business and ambition and determine a facility that’s appropriate to them. Plus, we stay very close to them and adjust their plan as their need evolves. We’ve helped many dealers successfully grow their businesses over the years through this approach.
Q: What makes NextGear Capital different?
A: With NextGear Capital, we’ve created a funding product that gives dealers freedom and flexibility. The key difference is that dealers receive 100% funding regardless of source. We’re also integrated with 70+ auctions and vehicle wholesalers where the full hammer price plus delivery and buyer’s fees can be settled directly. If buying from another source, including part-exchange or a private sale, 100% of CAP clean or invoice price can be funded.