Partnering with the right lender can make a big difference to your dealership’s bottom line. A professional lender can provide you with better terms, faster funding, and optimize profitability on every sale.
If you’re considering a new lender partnership, be aware that, like any relationship, it’s a two-way street. While you may be focused on your own criteria for choosing a lender, a lender also has standards when they are looking for a dealership to partner with. Knowing what they’re looking for in advance can help you put your best foot forward and increase the chance that your ideal lender will select you as a partner.
Professional lenders with quality reputations want to do business with similar companies. Most representatives will conduct interviews and research your dealership before signing you as a partner. This may include looking at your online reviews and checking to see if you are members of your state dealer association and the National Independent Auto Dealers Association (NIADA).
Although professional memberships don’t make or break whether or not you’ll be selected, in the words of Doug Marohn from Nicholas Financial, “If they take the time to be part of their state and national association, they tend to be more in tune with regulations and more cognizant of doing business the right way.”
Integrity is paramount. Most lenders have no problem financing customers if they have the right information, but when they’re trying to muddle through erroneous or fraudulent information, they are going to have difficulties and will be reluctant to do business with you.
This is a small industry, so expect lenders to ask other lenders and vendors what their experience has been working with your dealership. They’ll probably also check with your local auction representatives to see if you are delinquent or floating.
Lenders will also review customer complaints. The more customer complaints that pile up, the more a lender might back away from doing business with you.
The good news is that when your reputation and integrity are positive and you have few customer complaints, lenders will be eager to become a resource for you. They’ll be more aggressive about callbacks and offer you bigger advances and longer terms.
Most lenders prefer working with dealerships that have a certain level of structural organization and are involved with sales strategy and execution. Are you willing to be an active partner in a relationship? Lenders want someone they can have honest conversations with, not just on day-to-day loans but about performance and expectations.
Navid Arefi from Exeter Finance puts it this way: “How tight do they run their business? If they’re running their independent store like a franchise store then I might be willing to overlook it if they don’t check every box. If they have pride of ownership and the internal controls to back that up, that’s the #1 thing I want to see.”
Taking steps to prevent fraud in your dealership also goes a long way to building lender confidence.
The inventory on your lot speaks to the standards your dealership upholds. Lenders want to see that you’re both stocking the right kind of inventory for your market and that you’re taking pride in the inventory that you do stock.
Quality of inventory matters, but it’s not necessary to have two-year-old vehicles with fewer than 30,000 miles. You can have 10-year-old units with 150,000 miles, but lenders want to see if these vehicles have been properly reconditioned. Expect them to check CarFax also to make sure you’re not putting complete bombs out on the lot.
Some lenders might have minimum selling requirements, such as 20 vehicles per month. Others may want to review your financials to ensure that you’re maintaining profitability.
The most likely reason a lender will terminate a relationship with you is because of performance. If you submit hundreds of applications with no deals funded or you underperform or submit fraudulent deals, don’t expect a lender to stick with you for long.
If you’re thinking about partnering with a new lender, be prepared for a thorough review. If you have a good reputation, run your organization in a professional manner, take pride in your inventory, and are profitable, you’ll have no problems finding a lender that can help you take your dealership to the next level.