What is a capital strategy for a buy here pay here dealership?

A capital strategy defines how you fund originations, inventory, and operations at the lowest sustainable risk and cost. It aligns equity and debt sources with underwriting, pricing, and collections so that liquidity stays stable and performance supports long term growth.

How much equity should I use versus debt?

The mix depends on loss profile, growth rate, and lender terms. Many dealers keep equity that supports a debt service cushion and use a revolver for working capital. Model multiple leverage levels and choose the one that preserves liquidity through stress tests.

BHPH United - Buy Here Pay Here Dealer Education and Training for Subprime Auto Financing In House Financing Lease Here Pay Here Operations Compliance Leadership Marketing and Dealer Success Nationwide

Build a resilient capital plan for your buy here pay here dealership with practical education that turns funding into predictable growth. This page explains how to structure lines of credit, forecast cash flow, measure true cost of funds, and align underwriting, pricing, and collections to your capital stack. Learn how to present your portfolio to lenders, negotiate covenants, and maintain liquidity through cycles. Explore data driven KPIs, stress tests, and static pool analysis so you can scale with confidence while protecting profitability. Whether you are launching a new program or optimizing a mature portfolio, you will find step by step guidance and links to deep dive resources such as buy-here-pay-here-portfolio-management-education and buy-here-pay-here-risk-management-training. Move from reactive cash management to a proactive capital strategy that supports sustainable deal flow, better customer outcomes, and long term enterprise value.

What a Buy Here Pay Here Capital Strategy Must Achieve

A complete buy here pay here capital strategy aligns sources and uses of funds with your underwriting, pricing, collections, and remarketing processes. Your financing plan should deliver sufficient cash to acquire inventory, originate contracts, cover operating expenses, and service debt while keeping risk within tolerances. The right mix of equity and debt lowers overall cost of capital, supports steady originations, and gives you headroom for downturns. The following framework breaks the work into practical steps you can implement across teams and locations.

1. Define Portfolio Objectives and Guardrails

Start with the outcomes you want your capital to produce. Set growth targets, loss tolerances, and liquidity rules. Translate those goals to policies your team can execute daily. Reference discipline specific training as needed to align operations with capital goals.

Link capital targets to underwriting tiers and pricing grids. See buy-here-pay-here-underwriting-education and buy-here-pay-here-pricing-strategy-training.
Define minimum cash on hand, revolver availability, and borrowing base cushions aligned to seasonality.
Use static pool loss curves and payment performance trends to set advance rate expectations. See buy-here-pay-here-payment-performance-education.

2. Map Sources of Capital and Cost of Funds

Most buy here pay here dealers blend owner equity with bank revolvers, specialty finance lines, warehouse lines, or floorplan facilities. Each source carries a different effective cost once interest, fees, reserves, and required cash balances are considered. Build a weighted average cost of capital that includes operational costs required by each lender, then compare against your expected portfolio yield and net charge offs.

Model interest, unused line fees, audit fees, reserve holds, and curtailments to get true cost per dollar advanced.
Calculate contribution margin by product tier after servicing and expected losses. See buy-here-pay-here-portfolio-management-education.
Pressure test your WACC during higher loss and higher rate scenarios. See subprime-risk-management-education.

3. Build a Cash Flow and Liquidity Plan

Cash flow timing defines whether your strategy is sustainable. A strong plan projects weekly inflows from customer payments, recoveries, and sales of collateral against outflows for inventory, reconditioning, payroll, and debt service. The goal is consistent availability on your line and enough liquidity to handle volatility in collections or acquisition costs.

Forecast 26 to 52 weeks with sensitivity to seasonality and tax time bumps. Update weekly actuals versus plan.
Align payment frequency with your customer base to smooth inflows. See buy-here-pay-here-collections-training and subprime-collections-strategy-education.
Set inventory turn targets that match your capital cycle. See buy-here-pay-here-inventory-management-education.

4. Prepare a Lender Ready Data Package

Lenders fund clarity. Package your portfolio with consistent static pool analysis, roll rates, vintage curves, delinquency and recovery performance, and reconciled financial statements. Include policies for underwriting, collections, and repossessions to demonstrate control and repeatability.

Monthly static pools for originations, cumulative net loss, recovery lag, and prepayment speed.
Borrowing base certificates that tie to system of record and bank statements. See dealer-accounting-training-education.
Documented policies for charge off and reinstatement. See buy-here-pay-here-reinstatement-strategy-training and buy-here-pay-here-collections-policy-education.

5. Negotiate Advance Rates and Covenants

Advance rates, concentration limits, and financial covenants shape your growth capacity. Use data to justify higher advance on strong tiers and to push for flexible reserves that release with performance. Understand the triggers that can restrict funding and keep a mitigation plan on file.

Request tiered advances by credit grade or payment performance band.
Limit dealer recourse and target step downs as vintages season.
Establish early warning metrics and action plans. See dealer-risk-management-training.

6. Align Operations with the Capital Plan

Your capital strategy only works if daily operations deliver the portfolio you promised. Train teams to maintain the agreed documentation standards, payment communication cadence, and charge off discipline. Technology choices should improve data quality and time to funding.

Standardize verification and stip processes. See dealer-operations-management-training and dealer-technology-training-education.
Track collections KPIs by agent and cohort. See buy-here-pay-here-real-world-collections-training.
Train leaders to coach to metrics and escalate risks. See buy-here-pay-here-leadership-training and used-car-dealer-leadership-training.

7. Compliance, Audits, and Regulatory Readiness

Capital providers expect clean compliance. Keep your policies aligned with state and federal rules, and prepare for lender, auditor, and regulator requests. Consistent files and documented exceptions protect both funding and reputation.

Train teams on buy-here-pay-here-compliance-education and buy-here-pay-here-federal-compliance-education.
Use audit checklists and mock exams. See buy-here-pay-here-audit-preparedness-training and used-car-dealer-audit-preparedness-education.
Build a digital data room for lender exams and renewals.

8. Scenario Planning and Stress Testing

Test your plan against slower originations, higher charge offs, lower recoveries, and rate shocks. Pre approve actions such as pausing certain tiers, adjusting pricing, or raising reserves so you can respond quickly without disrupting customers.

Build what if models for unemployment spikes and wholesale price swings. See dealer-performance-optimization-education.
Define triggers for staffing and expense adjustments. See dealer-hr-training-education.

9. Growth, Multi Location Expansion, and Succession

As you scale, lender expectations rise. Multi location operations require consistent policies, centralized reporting, and a leadership bench. A succession plan and board level reporting build lender confidence and can widen access to capital at better terms.

Prepare a three year growth plan with store rollout, staffing, and capital milestones. See buy-here-pay-here-dealer-growth-planning.
Train managers through dealer-leadership-development-training and buy-here-pay-here-staff-training-development.
Document buy-here-pay-here-dealer-succession-planning to protect continuity.

10. Measuring Success: KPIs Every Lender Watches

Track a concise dashboard that tells a clear story of credit quality, cash flow, and capital efficiency. Report consistently and show actions taken when metrics drift. Build the habit of monthly portfolio reviews and quarterly strategy refreshes.

Originations, weighted APR, and advance rate by tier.
31 to 60 and 61 plus delinquency by static pool month, roll rates, and cure rates.
Net charge off and recovery timing, repo rate, days to sale, and loss severity. See buy-here-pay-here-repo-process-education.
Cash collected to cash invested ratio, portfolio yield to WACC spread, and debt service coverage.

Related Learning Paths and Resources

Deepen your capital strategy by improving the processes that drive portfolio performance. Explore these connected topics and build a training plan that supports your funding goals.

Helpful Links

Explore more pages to round out your knowledge and stay connected.

Frequently Asked Questions

A capital strategy defines how you fund originations, inventory, and operations at the lowest sustainable risk and cost. It maps equity and debt sources to underwriting, pricing, and collections so that liquidity stays stable and portfolio performance supports long term growth.

Combine interest, line fees, reserves, curtailments, and audit costs to find effective rate. Compare that weighted cost against portfolio yield net of charge offs, recoveries, and servicing expense. Maintain a positive spread that meets your profit target and covers downside scenarios.

Lenders expect reconciled financials, static pool loss curves, delinquency and roll rate reports, recovery timing, policy documents, and borrowing base certificates tied to your system of record. Clear, consistent reporting improves advance rates and renewal terms.

The mix depends on your loss profile, growth rate, and lender terms. Many dealers maintain equity that supports a healthy debt service cushion, then use a revolver for working capital. Model multiple leverage levels and choose the one that preserves liquidity through stress tests.

Common covenants include minimum net worth, liquidity, delinquency caps, and charge off thresholds. Avoid breaches by monitoring KPIs weekly, keeping borrowing base headroom, and preplanning corrective actions tied to triggers. Document responses and communicate early with lenders.

Update static pools monthly and refresh cash forecasts weekly. Use monthly reviews to adjust pricing or underwriting and weekly reviews to manage line usage, inventory purchases, and staffing. Consistency builds credibility with lenders and improves performance decisions.

Stay Connected and Keep Learning

For ongoing insights, visit blog, join education-and-events, and connect through meet-us. If you have questions about aligning your capital plan to your operating model, explore buy-here-pay-here-dealer-education and dealer-workshops-and-training. When you are ready to discuss specifics, contact-us. To understand how peer leaders approach these topics, review dealer-industry-insights-education.