How do car dealers finance stock

One of the biggest problems that vehicle retailers face is how to find large amounts of cash to fund the stock that is required to run a successful and profitable retail business. Car flipping on a small scale can be largely self funding, but getting started can be hard and expanding even harder.

It is generally agreed that the more vehicles you hold in stock, the more sales you will achieve based on a good stock turn ratio. A stock turn of eight times per annum is a good minimum target to aim for, so for example if you held a stock of 50 vehicles then you should be looking to sell at least 400 units per year.

So with that in mind we will cover the various financing options available to the fledgling flipper or experienced dealer below.

1. Using credit cards to start your business

Conventional wisdom says not to finance your new car business with a credit card. But credit cards can be a useful part of launching a car flipping business if used correctly. But they also come with potential dangers. So how can you make sure to use credit cards the right way to finance your business?

Understanding the benefits of credit cards – The primary reason to use credit cars to fund your car flipping business is convenient access to revolving credit. This is especially convenient if you are just flipping cars as a side hustle or hobby.

With a credit card in your wallet, you can easily cover car purchases and cash flow gaps, pay off short-term business expenses like bodyshop bills or mechanical repairs, all without applying for a loan or using your own capital or cash. This flexibility can be an especially useful when you are starting out.

Appreciate the Risks – Obviously using a credit card to finance your business also comes with some potential dangers. While the additional flexible and cash flow can a useful way to help grow your business’s early days, abusing a credit card can lead to a damaged credit score and, if the situation is bad enough cause your fledgling business to fail.

Leaving you with credit card debt that you might struggle to pay off. So it’s important to keep track of your expenses and to make payments on time, most importantly you need to spend within your means.

Introductory Rates – Taking advantage of introductory rates is a great opportunity when you first get a card. Plenty of credit cards come with 0% APR as in introductory offer. Just be careful not to get carried away and saddle yourself with debt you can’t afford once the introductory period ends.  

2. ​Fund your business yourself (self-funding)

Self-funding also known as bootstrapping lets you leverage your own financial resources to support your business. Self-funding can involve turning to your family and friends for capital, using your savings accounts, or even tapping into your pension or selling off an asset to fund your new venture.

Self-funding allows you retain 100% control over the business but you also take on all the risk on yourself. You need to be careful not to spend more than you can afford, and be especially careful if you choose to use tap into retirement accounts early. You may face expensive fees or penalties, or damage your ability to retire early or on time.

Self-funding is definitely the most sensible way to start in the car flipping business and in most cases incurs the least risk. Once you have flipped your first few cars the business usually has enough capital to become self funding, if you are doing it right. 

3. ​Get venture capital from investors

Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company. But it can also come from friends or family as mentioned above. Venture capital differs from traditional financing in a number of important ways.

Firstly venture capital isn’t a loan, a venture capitalist invests capital in return for equity rather than debt. Usually with the promise of higher returns or a large equity stake further down the line. This can work well if you are expanding you’re flipping business and are looking to go full time or take on a forecourt or garage premises. 

Advantages – Using private equity or venture capital is a very low cost option when raising funds. You also don’t have to make regular payments and won’t be liable for any capital loss if the business fails. Also the investor may be able to offer future funding and valuable business advice to help move the business forward.

Disadvantages – The main disadvantage of using venture capital to start a business is you will need to give up equity and some control of the business. You will also need to do some due diligence to make sure the potential investor shares your vision for the business, and has some experience in investing in small business and startups. Once you have found an investor it is essential that both parties understand their responsibilities and that everything is agreed in writing.

4. ​Get a small business loan

If you want to retain complete control of your business, but don’t have enough funds to start and are worried about using credit cards, then consider a small business loan. Small business loans are the traditional way of funding a new business venture.

This a great option for both flippers and car dealers looking to expand. Both banks and loan companies offer business loans, you will have to prepare a business plan, expense sheet, and financial projections for the next five years. These projections will give you an idea of how much you’ll need to ask for, and will help the bank understand you business idea and the amount of funding you will require.

Once you have you have the plans ready, contact banks or loan company to request a loan. You’ll want to compare offers to get the best possible terms for your loan.

Advantages – The key advantage of a business loan is that interest rates are usually super competitive. This is especially true if you already have an established small business with a good track record and profits.

Also bank and loan companies usually have assess to larger amounts of money, making them idea if you really want to get the business going. Having a lump sum in the bank can give you confidence and take away the cashflow pressures almost every small business owner feels.

Disadvantages – Small business loans requires an extensive amount of paperwork ranging from personal finance reports to cash flow projections business plans and expense sheets. In addition it often takes a relatively long time for the small business loan company to process an application, and even once the paperwork has been reviewed it could be rejected.

Typically a small business loan lacks flexibility, you have to take the loan in full and the monthly payments are fixed. Banks are unlikely to grant payment breaks and often charge high set-up and document fees.

5. Vehicle stocking loan or plan

This is the most common form of funding in the motor trade and used at every level, from the smallest second hand dealers to the largest franchised dealer groups. Loans are available against new and used cars, motorcycles, caravans and light commercial vehicles.

Stocking loans are secured against individual vehicles at the time of purchase and then repaid to the lender once the car is sold. Interest rates are competitive and some leaders offer no deposit leading, allowing you to expand quickly and efficiently with little of no capital outlay.

Car flippers may struggle to get stocking loans until they are more established. But are a great option if you are looking to go full time or take in a small forecourt or garage.

Advantages – Flexibility is the key advantage here. You are only borrowing the exact amount you need. Loans are secured against the car not personally or against your company. Stocking plans are a great option if you are looking to go full time or take in a small forecourt or garage as expansion. Loan approval doesn’t typically require the same level of paperwork as other traditional loans. In most cases you can borrow large amounts of money easily as the your assets aren’t being borrowed against, the loans are against the vehicles and not your credit score.

Disadvantages – Car flippers may struggle to get stocking loans until they are more established. You may have to pay a monthly interest and or capital repayment fee. Some stocking loans are only available over a short period, 3-6 months.

6. Small business overdrafts

An overdraft is essentially a pre agreed line of credit agreed with your bank, and works in a similar way to using a credit card. It lets you draw down funds up to an agreed limit beyond the amount of money you have in your account. You pay interest on the amount of money your overdrawn, making it a useful cash flow solution in many situations.

Business overdraft pos

Safety net – One of the main benefits of a business overdraft is that you’ll only need to pay interest on the money you actually draw, so it could act as a relatively low cost (depending on fees) safety net that you don’t even have to use. 

Flexible term limits – Generally, you’ll be able to talk to your lender about the period you’d like the business overdraft to be available for and you may even be able to get it renewed. You’ll also be able to close it at any time, though if you do, you’ll obviously have to pay off any outstanding balance or fees. 

Cash flow – A business overdraft could help you fund a range of business needs when you don’t have your own money on hand, especially if they’re unexpected expenses.  

Choice of security – Lenders tend to offer both secured and unsecured business overdrafts. The benefit of a secured overdraft is that you’ll likely pay a lower interest rate in exchange for offering property or another asset as security, while for an unsecured overdraft you’ll tend to be charged a higher interest rate but you won’t need to put up any collateral.

Business overdraft cons

Interest rates – While you won’t pay any interest on the balance of the overdraft you don’t actually use, you will be charged an interest rate (generally a daily rate) on the money you do draw upon. It’s also worth noting that business overdraft interest rates tend to be higher than business loaninterest rates, so it could be worth weighing up both as business funding solutions.

Fees – Aside from an interest rate, you may still need to pay business overdraft fees – even if you don’t touch it! These could include application fees, annual fees (generally charged as a dollar figure or as a percentage of the whole limit) and late payment fees. 

Quick termination – While you’ll be able to call off your business overdraft at any time, the same goes the other way too, as the overdraft could be called in by your bank at any time.


It costs money to start a business and every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future and borrowing needs of your business.

You should take all the advice you can before deciding on which funding route to take. Long term you should work towards eventually owning all of the stock outright by reinvesting the profits and compounding the profits.

Like what you’ve read? We have written an article here on the pros and cons of car finance