The following is a case study on a deal between CORFinancial and a client that needed commercial financing to provide a solution to its growth problem.
A well-established used car dealership servicing the non-prime market with its own in-house leasing arm was looking for funding to grow its lease portfolio and inventory levels needed to increase sales volume.
· 3 locations in and around the GTA.
· Consistently shows annual profits and re-invests into inventory and the lease portfolio.
· A 10 year plus strong relationship with its bankers with a small operating facility 70% utilized.
· $1.5 million in inventory, mostly paid for. The balance is funded through 3rd party floor-plan funding.
· The leasing portfolio approx. $6 million at cost.
· On average, approx. 60 vehicles sold per month…approx. 40 (65%) requiring financing. Due to cash flow constraints, the in-house leasing company is only able to fund between 15 and 20 of these deals, depending on available cash flow.
· Like most well-run used car dealers servicing the non-prime market, the average vehicle price is around $23,000.
The bank was not prepared to provide any funding for the leasing arm and was reluctant to increase the operating line to allow the company to increase inventory, hence the 3rd party floor-plan funding.
The company funds leases with its own available cash flow and some 3rd party private funding and sells the balance of its deals through DealerTrack. Based on its sales volume its was passing on in excess of 50% of its deals that it could not fund internally, resulting in a loss of more than a million dollars in net lease revenue on existing sales volume, and the potential to grow sales volume.
CORFinancial was able to structure a 3-year asset-based loan (some term but mostly a revolving line) to fund the growth of the portfolio using the equity in the inventory and existing portfolio. This will allow the company to increase sales volume by 10-15 vehicles per month and to double the size of the lease portfolio each year.
The experience from CORFinaincial in navigating financing options helped this company overcome their obstacle and realize a solution was possible.