Bank of Scotland Dealer Finance urges dealers to be smart with their borrowing

August 2005

With the economic climate for retail car sales remaining challenging, Bank of Scotland Dealer Finance is urging motor dealerships to keep a tight reign on their finances and ensure that they source the most appropriate form of funding to purchase stock - particularly for used cars.

The Bank believes that a significant number of motor dealerships use their overdraft facility or other sources facilities to purchase used cars, which can put severe pressure on the businesses cashflow.

Paul McGill, Director at Bank of Scotland Dealer Finance explains: "Too often, when we look at a motor dealership's accounts, we find that they are using their overdraft to purchase used cars. When sales and profits are tight this can create real problems for dealerships, particularly when specific stock funding facilities for just this purpose are available."

According to McGill, dealers need to ensure that they are borrowing from the most appropriate source for each purpose and that the funding is being put to best use. For used car purchases this would generally involve the creation of a specific stock funding facility, leaving any overdraft facility free for daily cashflow.

He comments: "There are numerous benefits to structuring finances in this way. With a used car stocking facility, a finance company could lend between 80 and 100 per cent of the stock value, whereas banks traditionally would only lend between 15 and 20 per cent. This arrangement can therefore increase the cash available to the business significantly, based on the value of the stock."

There are other advantages too, since the charges on a stock funding facility could work out cheaper than those on an overdraft.

McGill adds: "The charges on arrangements like this are generally a reflection of the volume of retail finance business that a finance company writes with a dealership. As a result a used car stocking facility could be cost effective as well as cash generative."

Bank of Scotland Dealer Finance is the single, largest Independent provider of wholesale funding to UK motor dealers*. Together with Bank of Scotland it is also able to offer dealers a financial health check facility and make recommendations on possible restructuring of funding arrangements.

Press contacts: James Crawford or Nancy Jones at Euro RSCG Biss Lancaster on 0161 236 2277 or email firstname.lastname@bisslancaster.com

*Source: FLA Benchmarking Statistics, Motor Finance via the Point of Sale, 2005