With the tightening economy, many independent dealers are finding it increasingly difficult to secure additional capital.
Before dealers consider renewing or increasing their line of credit, there are three principles for them to consider and make sure they are addressing – the three Cs.
“Compliance, collections and communications,” said NIADA 20 Group Moderator and Consultant Brad White.
Before joining NIADA, White served as the Franchise Consultant with JD Byrider, one of the nation’s leading used car and finance companies, with more than 150 locations. He guided franchise operations, enhanced dealer profitability, and ensured compliance with corporate standards.
He also held the position of Director of Sales in Advertising & Marketing for BHPH dealers, developing and implementing strategic marketing initiatives to boost dealership visibility and customer engagement. In addition to his consultancy and marketing roles, White has hands-on dealership management experience, progressing from general manager to CEO, overseeing large-volume, multi-location dealerships.
Working with new and veteran dealers, White has seen the challenges that dealers have faced in borrowing. However, forming a solid business plan that addresses the three Cs is the start of finding and maintaining financing.
“A business plan is the biggest piece for a new dealer when looking for funding,” White said. “Lenders have different covenants. Whenever the lenders are looking at these business plans they are looking at what kind of vehicle you are selling. What’s the cost of that vehicle and interest rates? From there, they are looking at your inventory, and how many cars you’re looking to sell. What is your need as far as a line of credit?”
The business plan quickly funnels into the first C – compliance. The lenders want to make sure the dealers they are choosing to go into business with are complying with federal, state and local laws, rules and regulations. That includes having written policies to address protecting consumer data and discriminatory or predatory lending. Dealers also need to make sure notices are being sent to customers on time.
The second C, collections, needs to be in order. Loans all have covenants requiring 30-day delinquencies to stay under a certain level. The threshold may be between 3 to 6 percent. All accounts 31 days or more past due will be considered an ineligible receivable and count toward the threshold. Lenders want to see growth in eligible receivables.
The third C is communication. Communication is a two-pronged approach with customers and your lender.
See the full article in the November issue of UCD.
