Stocking finance reduction provides new opportunities for car dealerships

New opportunities arising as stock finance options reduce

Jake Dye, Relationship Manager at MAF Finance Group

Historically, car dealerships have seen stocking finance as the ideal solution to fund their forecourt while maintaining a healthy cashflow. But with key lenders pulling out of the market, this is an ideal opportunity to explore if there are methods of finance that are more suited to SME car dealerships.

While the price of money has had an impact, the nature of business for car dealerships is one of ever-changing demands and hard to predict trends. This means a financial solution that can work with these external pressures is necessary for car dealerships.

With changes in the automotive industry mirrored in car dealerships, whether that be predicting EV demand, the models’ consumers want, or what the reaction to the redress scheme from the FCA will be, new challenges are being added to an already difficult market.

In periods like this, it is important to emphasise the value of having flexible finance, ensuring that in moments of uncertainty financial pressures can be kept to a minimum, enabling car dealerships to maintain focus on strategising and funding future growth and success.

As these factors add pressure, many businesses – not just in the automotive sector – are looking towards a revolving credit facility, a short-term finance solution that car dealerships and the wider business environment can significantly benefit from.

From a car dealership’s perspective, the benefits of using a revolving credit facility over traditional stocking finance are clear to see.

First, a revolving credit facility is not tied to the sale of the vehicle. This means there is no deadline date for the sale of the vehicle.

Furthermore, funds can be drawn at any time, so during an unpredictable period, the business has funds available to cover expenses, whether that be vehicle-related or for the wider business operations. A revolving credit facility also requires no need to have a number of reciprocal consumer finance packages attached to the deal.

The result, when consumers are looking for a wider range of options, is a larger panel of lenders for customers.

Unsecured lending has also seen a rise in popularity. This method of finance allows car dealerships to settle or pay a loan early without additional fees. These are granted based on the borrower’s creditworthiness rather than tied to collateral. They provide added flexibility, as well as the ability to bridge payment gaps or fund stock.

With sales in the consumer market hard to predict, especially for high value purchases such as a new or used vehicle, having debt that is more flexible, can be used for a wider variety of purposes, and doesn’t create deadlines for sales reduces pressure for car dealerships at a point when it is at its highest.

For many years, stock finance was the tried, tested and trusted solution to funding growth at a car dealership. However, with the rise in popularity of businesses using a revolving credit facility, and subsequently more lenders offering this finance product to SME businesses, there is an opportunity for car dealerships to explore an alternative to stocking finance they may not have been aware of previously.

The climate for investigating if revolving credit facilities are the right fit for car dealerships operating at a £1m to £5m turnover is now, and taking this opportunity could support stability and, when the market picks up, stronger, sustainable growth.

To learn more about the finance we have available for car dealerships, email us at [email protected], or call us on 0115 958 6872, and a member of our team will be happy to speak to you.