Almost a quarter of used car retailers have turned to Government-backed COVID-19 recovery loans or overdrafts to fund their forecourt stock since lockdown, NextGear Capital has found.

Responses to the latest dealer sentiment survey commissioned by Cox Automotive’s funding arm showed that 13% of dealers have used the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme (CBILS) to stock up their forecourts, while 22% have used an overdraft facility. 

NextGear Capital said that the number of dealers turning to overdrafts has risen sharply since last polled dealers on their funding practices in October 2018.

Back then just 9% cited overdrafts as a source of wholesale funding.

An increased number of dealers are also using their own cash to fund their stocking operations – 78% now versus 47% in 2018.

The insight from NextGear comes just days after the Finance and Leasing Association (FLA) urged Government to not ‘prematurely end’ its COVID-19 finance support for UK business in a co-signed letter to Chancellor of the Exchequer Rishi Sunak.

That letter was intended to influence the Chancellor’s Comprehensive Spending Review (CSR), due to be announced this autumn.

Commenting on the findings of NextGear Capital’s survey, managing director Liam Quegan, said that he thought it was a great thing that dealers had taken advantage of Government support but described the number using their overdraft facilities as “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,” he said.

“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.”

NextGear Capital has approved customer requests for an additional £27m since June 1, while it funded some 10,000 vehicles worth £82m during lockdown itself.

Its recent dealer sentiment survey revealed that, since June 1, 22% of car dealers have purchased stock with captive finance, 9% via a bank loan and the same number have used non-captive finance.

Quegan said: “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.”