Term loan facility: financing the working capital of a car dealer group

Our client: a multi-brand car dealer group in south-east France

Our client is a multi-brand car dealer group based in the Provence-Alpes-Côte d'Azur region of France, operating a network of dealerships covering new and used vehicle sales, aftersales, parts and the arrangement of finance solutions for its customers. Its model rests on a mixed customer base of private buyers and corporate fleet managers; on a stock of vehicles in constant rotation, which is the largest item in its current assets; and on aftersales and used-car margins that, as across the whole trade, have become a necessary counterweight to the volatility of new-car sales. Built up through successive mergers of sites within the same catchment area, the group has reached the size of a regional mid-cap company and is continuing to densify its network — which requires the long-term funding of its operating cycle to be secured.

The financing need: a working capital term loan

The purpose of the transaction was to fund the group's working capital requirement — the permanent gap between paying manufacturers and suppliers for vehicles and parts, holding the stock in the dealerships and actually collecting the proceeds of sales — at a time when the densification of the network was mechanically increasing that requirement. The case raised three simultaneous constraints: current assets dominated by a stock of vehicles whose value depreciates over time; marked commercial seasonality that distorts cash flow from one quarter to the next; and existing bank lines already committed to other facilities, which limited the security available for any new funding. The mandate given to the firm covered scoping the need — distinguishing it from the stocking finance provided by the manufacturers' captive finance companies — structuring a committed term loan rather than an uncommitted facility, approaching a panel combining banks and private debt providers, and then supporting our client through to drawdown of the funds.

What the lending market was saying in 2024

Three public publications help to place the environment in which this loan was arranged. They concern the sector and the credit market, never the transaction itself.

Why a committed term loan facility rather than an overdraft

A car dealer's working capital requirement is not a one-off gap that resolves itself: it is a permanent base, replenished every time the stock is renewed and growing with the number of sites operated. The funding therefore had to be committed and stable rather than revocable. This led us to choose a term loan, drawn down in line with actual needs and then repaid on a known schedule, where an overdraft facility would have left the group exposed to a line being reduced or withdrawn at the worst possible moment. Stocking finance from the manufacturers' captive lenders was kept outside the scope, because it follows its own logic and is backed by security already in place; the term loan covered the part of the requirement those arrangements do not fund — used vehicles, parts, aftersales and credit extended to business customers. The central question was not our client's creditworthiness but how readable, for a lender, a heterogeneous base of current assets and a seasonality that had to be documented month by month would be. Over the period, the Banque de France noted a "decline in outstanding short-term credit" to non-financial corporations, which captures the selective climate in which this funding was sought.

The first decision was to rule out any solution that would have changed the shareholding structure: since the need arose from the operating cycle and not from a lack of equity, opening up the share capital or a shareholder loan from the directors had no economic justification, and funding was sought exclusively in the form of debt. The next decisions concerned how the facility would be used: a committed loan available in successive drawdowns, with a commitment fee on the undrawn portion, was preferred to a single disbursement, so that the group would not carry unnecessary debt in the low season while retaining certainty of funding in the high season. Financial covenants were discussed in the same spirit, favouring monitoring indicators linked to stock turnover and trade receivables rather than balance-sheet ratios that would have constrained the policy of densifying the network. Finally, the allocation of security between existing facilities and the new funding was dealt with upfront, so as to preserve the group's ability to finance future site acquisitions separately. These choices were made in the light of this particular case and imply nothing about any other transaction.

The macroeconomic backdrop for car dealer finance

French motor retail went through a year of transition in 2024: the new-vehicle market contracted again, weighed down by household purchasing power and a wait-and-see attitude among businesses, whose registrations fell significantly, while the used-car market grew and hybrid powertrains continued to gain ground. At the same time, manufacturers are rationalising their networks and developing agency agreements and direct sales channels, which is pushing independent dealers to consolidate to reach critical mass and to diversify their revenue towards aftersales and parts. For a regional group, this twin dynamic — consolidation on one side, margin shifting towards used cars and services on the other — makes current assets heavier and more complex, and puts control of the working capital requirement at the heart of the business model.

On the financing side, 2024 presented a mixed picture: Banque de France statistics show moderate growth in bank lending to businesses, driven by investment loans, while outstanding short-term credit continued to decline and trade was among the sectors where banks were reducing their exposure. For this type of need, the major banks remain present but selective: they expect detailed documentation of seasonality and stock quality, and are cautious about low-unit-margin trading businesses. The gap was filled by lenders specialising in credit to mid-sized companies and by private debt funds, whose lending policy is based on analysis of the operating cycle rather than on tangible security alone, and which accept committed term loans backed by operational monitoring indicators. This description applies to the period observed and is neither a forecast nor a recommendation.

How Collaboration Capital added value on this working capital financing

Collaboration Capital acted as a banking and payment services intermediary (IOBSP — a status regulated in France and registered with ORIAS, the French register of insurance, banking and finance intermediaries, under no. 25000696), mandated by our client. The firm does not lend, grants no credit and guarantees no funding: it scopes the need, prepares the case, puts lenders in competition and supports the negotiation through to completion. The steps below describe this assignment as it was carried out, with its own particular features.

Further reading on business finance