Bus dealers and manufacturers often find themselves facing two distinct challenges: for dealers - acquiring the assets they need to sell on their lots. For manufacturers - helping their dealers find and obtain flexible financing programs. Inventory financing, also known as floorplan financing or wholesale financing, can help this “people moving” industry meet both these challenges efficiently and effectively.
Inventory financing is a form of asset-based lending in which the amount borrowed is determined by the value of the inventory. It is either a short-term loan or a line of credit and is based on a percent of the inventory’s value. Wholesale finance lenders can advance rates at 100 percent of a dealer’s invoice amount for new inventory, something traditional lending arrangements cannot match. There’s usually no need for additional collateral since the inventory secures the loan. Here are four key ways in which dealers of buses can benefit from the smart, strategic use of inventory financing.
- Purchase inventory. To thrive and grow, dealers need vehicles to sell. Simply put, inventory financing lets a dealer make volume purchases because this tactic can earn volume discounts. The pandemic has reinforced the importance of inventory planning, with many dealers looking to carry more stock than they would otherwise (when it’s available). Inventory financing can help make that happen.
- Improve cash flow. Companies are watching and guarding cash flow in a way they may never have before. In a volatile economy, it can be smart to use funds normally tied up in inventory for operating and capital expenditures – and use cash freed up through inventory financing for staffing and the other things needed to grow and maintain the business.
- Improved stocking levels boost sales. When a manufacturer can help dealers acquire the inventory they need with terms that work for them, that dealer will be able to stock more units, which can result in more sales. A strong inventory finance structure will match a dealer’s cash flow to inventory turn, which strengthens a dealer’s liquidity which allows dealers to preserve cash flow for other needs.
- Partnering with your manufacturers. A well-structured inventory finance program benefits bus manufacturers and upfitters by paying them immediately upon invoicing a dealer. Many manufacturers will share this benefit with dealers in the form of free-floorplan days or price concessions. The perfect structure creates a win for both the manufacturer and the dealer.
More benefits of partnering with the right inventory finance company
With supply chain issues a fact of life, the ability to partner with a reliable, stable inventory financing company is critical. Beyond the base reasons outlined above, dealers may realize some additional benefits.
- When you need help in financing ancillary equipment. It’s not only about the bus or bus chassis. Your customers may need ramps, shelving, signage, refrigeration equipment or other upfitting. A good inventory financing company will be able to develop favorable programs for the entire bus.
- When you have the need for speed. Getting quick-turn credit decisions and expedited funding can be challenging. An experienced inventory finance partner can make things happen fast, some even providing same-day funding.
- When you need to finance used equipment. Not every inventory finance provider will do this, but the ones who do can be invaluable.
Making smart business moves in the people moving industry calls for a smart use of assets. Finding and working with an inventory finance provider that’s a true partner can go a long way toward improving a dealer’s cash flow, inventory position and customer satisfaction.
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Gary Furnas is vice president and general manager, inventory finance, a division of transportation finance at Mitsubishi HC Capital America.
