By Kyle Heintschel
Regional Sales Manager
Capital is the lifeblood of all buy here-pay here (BHPH) operations, and current economic conditions have made getting a cash infusion an expensive proposition. As the federal reserve has increased interest rates, the cost of borrowing money has gone up.
Given the inherent risks associated with the subprime and deep subprime automotive finance business models, capital has always been more challenging to secure and expensive than almost any other business financing.
Because the BHPH dealer has assets (vehicles) to leverage, several capital acquisition options exist. However, they are expensive, and there are numerous stipulations. Dealers selling 25 units a month will need more than $2 million for just vehicle acquisition. Cash outflow is fast, and the money returns far more slowly in weekly, bi-weekly or monthly payments.
Self-funding is an option and the most cost-effective method. Dealers will have to access capital from savings, investments or loans from family, friends, or investors. The risk is loss of investment, and if not enough capital is available through unexpected events such as weather or accident, it will immediately lead to an inability to purchase new or recondition returning inventory.
Banks can provide lines of credit and small business term loans to assist with portfolio growth and have traditionally been among the least expensive. Banks have also been known to be selective in who they provide capital. They typically have more strict underwriting standards than other BHPH capital providers, require many years in business, audited financial statements, and strong net worth owners and seasoned portfolio performance. They can quickly end the relationship, as many dealers discovered during the 2007 housing crisis and subsequent Great Recession.
Bulk sales of notes is a common practice for BHPH, especially those that would like to maintain a limited staff and prefer not to expend capital resources on collections and service operations as the portfolio grows. The key benefit is immediate access to profits and the ability to fund future deals. The biggest concern for dealers is the loss of month-over-month cash flow from existing customer payments, not to mention the loss of repeat and referral business that comes from having a long-term relationship with the client. This is less of a concern than it used to be. Most dealers have multiple “contactless” ways for their customers to make payments. If the note buyer has poor customer service, especially with collections, it can lead to brand issues for the dealership. The consumer associates poor customer service with the dealership regardless of who now owns the finance contract.
Glenview Finance provides what most in the industry refer to as a Payment Streaming program, though our program is different, and we like to refer to it as “Streaming on Steroids.”
Typically, with a streaming program, dealers sell off a portion of payments only and give up any residual monthly cash flow to those deals. The capital provider manages collections during that period, but the dealer ultimately retains the customer when the payment stream has run its course.
Our program purchases the entire retail installment contract from ALL dealers with a 50 percent upfront advance. Further, Glenview continues to share 40 percent of each payment received, maintaining month over month cash flow for our dealer partners. If a retail dealer cannot find funding for a credit-challenged consumer, we step in and fund the deal. The retail dealer sells another vehicle and gets an instant return. The same goes for BHPH dealers who need access to capital. This gives them instant access to “up-front” cash flow and back-end profit as the contract matures. We handle all the collections and, if necessary, repossessions. Dealers receive an upfront advance and get their portion of the payment from Day 1 with no pool or performance metrics that need to be obtained. Ultimately, they would receive 90 percent of the principal and 40 percent of the interest for all contracts that pay in full.
Our hybrid point-of-sale program offers the best of all the models. We’re a partner with a vested interest in the success of the contract. We understand the challenges and opportunities of the retail marketplace, but we also have unrivaled automotive finance expertise. We have a shared interest in having satisfied customers who pay on time for the life of the loan.
If you want to learn more, call 877-288-0307 or email us at email@example.com.