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As Credit Tightens…Auto Lots Get Creative

One of the hardest issues these days for buy here pay here lot owners is finding access to working capital or credit lines.  With more and more car owners and home owners defaulting on their loans, banks are now tightening up their credit and taking a harder look at credit the credit risk of both the dealer and the car owner.

Although the SBA has rolled out some new initiatives to help car lot owners, that cash has yet to have a good impact on sales.  Private institutions and private lending are taking a chance by offering credit lines to buy here pay here lots.  Rates can vary based on credit and some other factors.  Aside from the dealers selling auto notes or finding people to purchase auto notes from them, this seemed like a positive for lots.

Additionally, the initiative had a major flaw. Although more auto dealers became eligible for the SBA’s loan programs, the SBA does not cover “floor plan” loans, the main kind of financing used by auto dealers. A typical floor plan loan is a revolving used car lot credit line that a dealership uses to purchase vehicles. As the cars and trucks sell, the dealership pays down the loan.

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