Finding Capital

This is probably the single most pressing issue for almost any business during the last three years. Where can you find capital? Finding capital for a BHPH operation is especially difficult due to the nature of the business itself. I found a lot of bankers could not understand how a business model based on loans to risky customers, with vehicles for collateral, often resulting in double-digit losses, made sense as a viable model. It was interesting that a lot of these same bankers couldn’t grasp that you could be in BHPH and not have double-digit losses.

I am not going to tell you I have solved this problem. Three years ago, I spent days calling and following leads to try and find funding to roll our capital needs to another lender. The regional bank we were with, like so many others, wanted out of our business, so the search began.

I was on the trail like a bloodhound, going from referral to referral, following the trail and checking the options that were available. We were looking for capital using our receivables as collateral. I started with the NABD available capital list. That list led me through a varied group of options from bank groups to venture capital. I went from “you are not a big enough operation” to “you would be able to sell 12-month blocks of payments as you make loans.” I found there are “banks” that are mainly commercial lending institutions. There are brokers that will do research and verification on your business for venture groups or banks then sell the deal for a fee. There are also consulting firms in BHPH that have lending available and will provide capital for multiple points over prime and several fees.

After all of the calling, waiting for return calls and faxing documents upon documents, I could not find a suitable match for our needs at rates that made any sense to us. In the end, we established a loan with a local bank using collateral other than our receivables to cover a portion of the capital request. This was three years ago. I can imagine that it’s even tougher today.

If I were starting again right now I would begin small and make arrangements with a portfolio buyer. With some seed money and a place to operate from, I could start moving units and put together blocks of loans to sell. With the right arrangement, I could sell the notes over to my portfolio buyer while I retain the customer contact and use the funds to sell more cars. Eventually with good management and proper underwriting I could get away from loan selling and provide a bank with actual operating numbers and a business plan that was born from existing business.

Unless you already have available funds, have a rich uncle or are a dealer who starts up BHPH within the existing operation, you will need substantial dollars to begin and operate. Our operation took about 30 months before we stopped needing capital and started paying back principle. We had an aggressive business model that started day one operating the same as we do today.

With the right business plan, portfolio buyer and work ethic, you can start and grow a profitable BHPH operation from the ground up using a small amount of up-front capital. Until the business climate changes and the economy improves in America, sources of funding are going to be scarce to nonexistent.

Just keep swinging and ducking, and we’ll get there.