The number of dealers using overdraft facilities to stock forecourts has more than doubled over the past two years.
In October 2018 just 9% of dealers used an overdraft for wholesale funding and this more than doubled to 22% in October this year according to new research from Next Gear Capital.,
One in four dealers have used short-term finance options such as government-backed Covid-19 recovery loans and overdrafts to pay for stock since reopening, according to the latest dealer sentiment survey commissioned by NextGear Capital.
Since 1 June, 13% of dealers have used the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme to stock up their forecourts, while 22% have used an overdraft facility.
Liam Quegan, NextGear Capital managing director, said: “I think it’s a great thing that dealers have taken advantage of Government support. These loans have allowed many to weather the storm and the cash injection has no doubt helped them keep pace with demand and their forecourts stocked over the last few months.
“However, the number using their overdraft facilities is concerning. Overdrafts are a short-term solution that can be expensive as cost is incurred until the overall balance returns to black. It can be like chasing your tail to get back into a positive position. I would urge any dealers leaning heavily on their overdraft facility to review their options and consider alternative means of stock funding that better suits their longer-term requirements.
“It makes sense dealers are using their own cash to fund stock where they can. With costs under scrutiny and market conditions forcing many to buy from multiple sources, cash trumps most alternatives. However, it doesn’t come without risk. Now more than ever, it’s vital to keep costs front of mind and maintain a very close eye on cash flow, remember that government schemes are unlikely to remain in place for much longer. Dealers with cash in the bank and access to funding that protects this position and affords them flexibility and choice will be best placed to navigate the challenges that lie ahead.”
The survey also revealed that since 1st June, 22% of dealers have purchased stock with captive finance, 9% via a bank loan and the same number have used non-captive finance.