Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of Joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. hey friends good morning welcome back to the uh buy here pay your morning show michelle's out today so it's just me so i'll probably be slow on some buttons and maybe a little late with music here and there so that's the part that i often count on her to help out with so she's uh engaged elsewhere this morning so uh happy to have you with us uh this has been a week that has been uh you know really kind of consumed with a series of emails if you are hearing this and you weren't in the email thread you can reach out basically what happened this week is i teed up emails to go out to Four different groups, and I did it each day of the week. I haven't sent one yet for Friday, but we'll use this podcast as sort of the way to wrap up the conversation for the week and share that via email later today, Friday. But The theme has been around access to capital. And obviously, it's a buzz topic. Dealers are out there looking for funding. And we find ourselves engaged with some dealers to support them in that effort. And I find myself doing the kind of work that I hadn't done much lately. We've been kind of wrapped up in our V-A dealer groups, of course. And, but the demand for capital has sort of brought people to us. More recently, we've had people find us by way of the YouTube channel and what have you. And we're digging in with them and helping to create financial modeling and some things to help them position for capital. finding capital. So there are a couple stories to tell, I think, that kind of tie much of this together. And I'm just finding that it's really rewarding work. I enjoy the work. I think it's an area where You know, my work as an analyst and as a risk mitigator to kind of help structure deals in a way that protect the dealer borrower in particular to make sure that they are building a plan that is sensible for them, that they don't get over leveraged, that they have a plan that they can manage the debt. And so this is part of the work and it's part of how this email track came together. So the four groups that I sent, I sent one specifically to dealers. So if you didn't receive that and you want to receive those, we've got them where it's linked. Now you just get one email and you can get all the short links to the video, the story that was told throughout the week. And so dealers was one group, DMS providers and other providers, vendors in the industry, lenders specifically got their own email invitation. And then the last one was our sponsors and partners and team. So kind of just told the same story, but from the perspective of all those different audiences, if you will. And for today, I just kind of want to wrap it up around, you know, a couple of elements that, you know, really came into play as we kind of work through this series. And of course, you know, initially I had Claude sort of frame out the topic and the subject matter, sort of the relevant bullet points and how to really tell this story. And especially as we move into this coming Sunday, a couple of days, we'll be in Austin starting the BHPH Forum. And there will be dealers there. There will be vendors. There will be educators. There will be, you know, the lenders, of course, will be some of them will be represented. And it'll give me an opportunity to really have some conversations, both with dealers and kind of the perspective on, you know, kind of how we're approaching the capital raise. And then also to be able to talk specifically to lenders to hear from them on exactly what what they're looking for, because part of my role in this whole strategy as we move forward and kind of create a process, a path to capital, then it allows us to create a scenario where we can become matchmakers of sorts. We can become quite familiar with the programs with each of the different providers we're familiar with most, and be able to ask them specifically what it is they're looking for, who are the applicants that they're most interested in working with at this point, their structure, position, whatever. And that way we can better choose, you know, who we meet with because we were sensitive to the time of both the lender and the dealer borrower. So this is a way for us to sort of serve in a matchmaking role and to also get the dealer themselves ready as a borrower applicant to. to pursue funding and to make sure that, whether it's a traditional revolving line of credit or whether it's a payment streaming sort of program, a funding program, my role with these dealers will be to help them prepare a plan that shows them the rate at which they can retire whatever debt they take on whatever type of funding so there's all these different programs out there um there there are fewer there are few fewer providers and maybe fewer programs i'll find out more about which programs are still in existence uh you know when we get to austin have a chance to talk specifically to some of these folks but the reality is Regardless of which type of funding that we're taking on, we need to make sure we can support it and that it's obviously going to impact our cash flows. This is part of the work that I do through the cash flow modeling. Recently, with the help of AI, we've really improved the tools that I've used for many years. We've now got those to where they're much more interactive. They've got some pretty... important layers to them. Reinsurance, as an example, uh, related finance company, you know, one of the dealers I'm working with, we definitely will be looking to get a related finance company set up for them for the, by the close of the year, because that'll obviously free up some capital going into next year because of, uh, the, the income tax factor. So, you know, I think for today, I want to start with kind of retelling this story. I told it in the email, um, track and told it by, um, by video, you know, and, um, and this dealer, I had a meeting with them since I started sharing the story. And, and you know, I, I, we had a little fun just talking through again, kind of why I thought this particular analogy that the dealer used was significant. We were wrapping up one of our sessions on cash flow modeling, and he was just expressing kind of gratitude around this idea that he was glad he found a solution like ours because we're able to help him build a plan. And, you know, Link, you feel like he's got a plan, a real strategy, and he's just expressed toward the end of the conversation that, He's been feeling frustrated because here's a person who's very gifted, very dynamic, able to Bruce a lot of sales, got a pretty new business, got about a hundred contracts that they've built with their own capital. And they had a pace and it was going well. And obviously, as capital started to dry up, he found himself. The way he described it is, I feel like I'm sitting on a high performance, like a motocross bike or something, and I'm only able to run it at a quarter throttle. And I just told him, I said, I think that's a really great metaphor or analogy to kind of think about what's going on there because I share with him. And I want to kind of tell the expanded story on this because I think it's relevant. There are a lot of dealers out there who find themselves in this situation. And by the way, what we're talking about here, everything that we'll talk about in the capital readiness realm is about getting ready, making sure you're positioned for the right capital at the right time and the right terms, regardless of your stage of business. It doesn't matter if you're this dealer with a hundred accounts on your own money, or if you're looking to improve your funding, you know, if you've got a line of credit and you would like to improve on your rate by, you know, becoming a attractive to another would-be provider. Everything we'll talk about here is relevant in those ways. It's all part of making sure that we're positioned to get the most favorable capital that's out there. So back to my guy in the quarter throttle stories, like, you know, he's running at a portion of capacity. We talked through this idea that, you know, when that happens, I share with him, I said, you know, what you're describing as a motocross, you know, you know, get the throttle and get this bike going. I've often talked about it. I meet a lot of people in this business have over the years that are, They're very sales-minded. They're kind of aggressive and risk-takers, and they'll go, go, go. And I've kind of come to describe them as thoroughbreds, right? They move fast, and the world needs them, and we value what they bring, and they're some of the most successful entrepreneurs. in the buy here, pay here segment, as I told this young man that, you know, the danger is that we put gas in the tank and you hit full throttle and you run that thing right off a cliff. So that's being dramatic, but we all know, any of us who've been around this industry very long, we have seen folks flame out very fast in this business because it's It's got a lot of elements to it. There are a lot of balls to keep in the air. It's not just a sales business. So having capital to put gas in the tank is great. We need that. And we got to ease into it to make sure that our processes will support the pace of sales as one example. But I also told him, I said, my first objective for you and any other dealer that we work with would be to make sure that we first identify capacity. In this example, if that dealer is sitting there selling ten cars a month, but they have the traffic flow, they have the leads and the opportunity to sell twenty a month. then that's what we would first want to identify. What is our current capacity to both sell, service, and collect? I said both. There's multiple, right? But to be able to do not just the sales side, but all the stuff that comes beyond that. So when I think about this, I'm thinking, and I told him, I said, I find myself sometimes in the uncomfortable position. I'm used to doing it now, but I find myself in a place where I'm having to pull back on the reins sometimes of the thoroughbreds. And so that's the risk mitigator in me. That's the one who says, let's get this thing structured right. Let's get the capital structured right. So that you can, and this is really true for me, whether it's a line of credit from a large provider, whether it's a local bank, whether it's, you know, our wealthy Uncle Joe, that when we introduce capital into this sector, right, and it's as true today at the end of who's made a career in this business. They're in the capital space. And I was sharing with them that I just rarely run across a portfolio that doesn't generate cash at a rate that will retire debt at a reasonable clip. I mean, even the ones that have high repo rates can If you look at the principal yield on the portfolio, how much principal we collect, how much interest we collect across twelve, twenty four months, whatever you want to measure. And then you add back in the repo values, even when repos are occurring. The cash flows on the portfolios is almost always sufficient to support debt that's properly structured. So really what comes into play is it's not a cash question, it becomes a discipline question, all right? So that's a really important thing to think about here because it's about building a plan and then having the discipline to stick to it. Sometimes what I mean by discipline would be kind of the operational support, whether it's administrative support, to be able to keep an eye on the cash flows, direct the dollars to where they belong, to make sure that we stay in the right ratio, we stay in favor with our private investor, our local bank, whoever that's going to be. So this is the part that I think is especially important, and I will just tell you that regardless of whether the lender asks me for it, I'm going to be working to make sure that that dealer has it, they understand it, they're positioned to be able to do that so that when the funding comes in, they're able to manage that successfully, leverage it into growth, And we've seen this happen. It can absolutely happen where, you know, in this particular dealer, I think at his particular stage of business, he's likely to be getting his funding from a private individual. It might be a hundred grand at a time or whatever makes sense. But if you think about bringing in that hundred grand, The ability for the dealer with discipline and good planning to be able to redirect the funds, so let's say you isolate a portfolio, whatever portfolio contracts is necessary to support that hundred grand of debt, you dedicate that to that debt, whether it's through lien filings or not, we have the ability to segregate that portfolio and attach it to that debt and make sure it serves the debt. That lets us build a cash plan around that make sure we build in the discipline to say when this cash comes in we have a strategy for earmarking those funds there's a weekly process is what i always recommend a weekly routine to be able to allocate funds move them to wherever whether even if it's moved into some mutual fund account or whether it's paid back to the lender to actually reduce the interest that's owed. We want to have that process in place. And this is part of what we can do. So this is the work that I'm used to doing. And this is why I think it's important for us to have this conversation and why I want to hear from dealers. Like if you're actively seeking capital, I want to hear from you. Even if you don't engage with us, even if you don't join a V-A dealer group, I want to talk to you about, ways to access capital, ways to improve maybe the rate that you're paying on money by making yourself more attractive to take on the financing, whatever kind of funding it might be, whether it's debt or whatever. We don't see a lot of equity investment here. It can happen, but Primarily we're talking about debt or I'll call it specialty funding programs. So however that looks on paper on your balance sheet, it's capital coming in and the method that it gets repaid. The contracts stay on our balance sheet, they don't stay on our balance sheet. We collect. The other party collects. Regardless, there's money coming in. We got to repay it. And then the part that I was saying is it's my experience and my expectation with this quarter throttle dealer that I'm referring to. It's my expectation that when they take on a hundred grand, they're going to retire that at a rate that the lending party will likely be back looking to do it again. They'll probably be bringing some of their people from the country club or whatever, wanting to get the same deal and try to get more capital. So I think once we prove that, you know, one of the frustrations I have, and I've got time this morning, so we're just going to tell the kind of expanded story because I think it's, it's, it's the right time for us to take kind of, Learn from what I've experienced and be able to utilize that information at this particular juncture in our industry where capital providers are fewer than they were just a few years ago. Programs may be more limited. The providers that are there may be a little more conservative than they were. so the reality is our access to capital is um is going to be diminished which means we got to be better as dealers we got to make sure that we're well positioned to warrant use of capital and the part that i really wanted to add here is that In working with lenders, providers across the space, you know, it's been a big joke. I've always said, you know, when you meet a local community bank and you tell them, I'm a buy here, pay here dealer, I want to talk to you about a line of credit, you know, you'll be doing good to get the bank's ballpoint pen and a good day. you know, in that scenario, because they're just not interested in that. Some of them have been burned. Some of them recognize this business as, you know, being a deep subprime and an applicant that they wouldn't finance. So they're not going to, you know, be involved in your business. And I get where that comes from, right? And it's on the surface, it's absolutely true. The applicant is deep subprime. They don't qualify for conventional financing. And the assets on paper may not look strong. I think when you look beyond the balance sheet or the qualifications of the applicants who are financing these cars and these portfolios, and you really look at the cash flows of the business, that's what I think we're looking for is people who understand the cash flows and feel like there's enough history of the cash flows to justify getting involved that the current cash flows of the business support the ability to repay debt and now guess what mr dealer now they're counting on will you manage the business will you have the discipline to to do it, even though your portfolio now shows that it will support the debt, can they rely on you to fulfill that? That's why you see some providers have been in this space a long time. They always collect. They never allow the dealer to collect. They will provide funding. They'll bring the contracts over onto their collections team, at least temporarily, and make sure that they collect and service the debt. So there's all these different layers to think about. The relationship with the customer when that happens. All these kind of things are things to consider. I think what we first have to do is position ourselves to make sure that our presentation, our packet that we would take to any would-be lender, capital provider, is it tells the story about our history of cash flows, which takes me into this thing about the value of having month-over-month data. Obviously, we do that in V-Aid. We'd love to see you become a V-Aid member. We now have dealers that have three full years of data history. We started in beta in October of We kicked off officially and started inviting members in in January of twenty twenty four. So as we close September, we had many of our members have thirty three months of month over month data history, which means they have trend lines. We have histories of cash flows. We can project based on their last six months is what we typically work from. We can show excuse me. We can show the last six months of cash flows. and extrapolate that to build a projection. Some would call it a rolling twelve, rolling twenty four. We're going to build the forecast. We have that as an ongoing thing in our VA modeling and we have since the beginning. So that allows us to then tell a very compelling story that says, this is the way that this dealer has traditionally collected. They may have dips, they may have spikes that are seasonal, but you now can see that this dealer knows how to collect. They have a history. And when they have had repos, you can see the value coming back in on those repos. And this is the story that becomes an important one to tell. Now, you know, some will hear that and say, well, Jim, you might be a little bit naive. I don't know that that's what banks look at. I'm telling you what Jim, as an experienced analyst, would be looking at. If I were on the underwriting team looking to provide funding to dealers who are in this position, these are the numbers I'd be looking for. What is the history of cash flow? What is the rate at which the portfolio collects? If the dealer is collecting, especially if I'm providing a revolving line and the dealer is going to be collecting on that paper. Because you won't have to look very far. If you're new to this business, you would not have to look very far to find lenders who have been burned by dealers doing their own collecting and not managing the money well. So again, it's really a question of, I first have to show that the cash flow history is there. And then guess what? Lenders are still going to be looking at, you know, character of the individual who's stepping forward to ask to borrow because it just history says you again, you won't find. That's why you find very few providers that do floor plans on cars that will provide funding on cars. on cars i mean that collateral's got wheels it can be anywhere tomorrow this is a little bit different kind of collateral and i would say what we want to do is make a compelling case that yes we have these assets yes we have these contracts that are i view the contracts as a portfolio being the primary collateral i view the car as sub collateral or secondary collateral yes there's a car title but When we tell the story well, the car value is here. The cash flows are here. Yes, the balance sheet may be up here because of the selling price and the note amount. And so we've got this maybe significant balance sheet, but that number is less significant to me than the rate at which that balance sheet item converts to cash so that's why i've always called the conversion rate how well does it convert to cash and if so if you're a dealer listening you know what is your history this is why we want to see month over month data i have a meeting this afternoon the same um Same modeling that we did for our quarter throttle dealer, we'll be doing for another dealer this afternoon. And so we're going in and building a year-to-date history. We built January through September of twenty twenty six. We'll then be able to take that history, extrapolate, build a forecast off of that. and show kind of what the capital needs are based on the strategy and what are we looking to do and what can we support, what's gonna make sense. So it's my job in that scenario to help the dealer present a story that is compelling. And then in the end, the dealer is the borrower. I can't promise that the dealer will get any funding. That's not the nature of our engagement. We don't guarantee any kind of funding. We just work to help the dealer get positioned to make sure that their packet is in line, that it has the requested items in. and to make a compelling case for the would-be party. And then there can be an engagement where we participate on the backside of that. When funding occurs, we can play a role as the risk mitigator. We can be the one who, as a third party, prepares the weekly settlement that I'm recommending so that we can provide the reports to all the parties who are approved to receive it And they can see this is the amount of cash that came in. This is how it's to be allocated. A check should be written in the amount of X, right? This is the routine that we're able to fulfill. And so now I think it just begins to make a more compelling case. And so this is why we know that it's important. We're going to be at Austin and we're going to be taking this, what we're calling a capital seekers roster. You may have heard me refer to it as a register. It's really just an anonymous list. It's got some coded labels for dealers that are actively seeking capital. Most of which are in our V-Aid community. That's how we know them. We know their cash position and what they're looking to do. We've got some dealers on there that aren't part of our V-Aid community. And so I'm asking today, if you're a dealer out there who is seeking capital, we don't charge anything for you to be on our roster. We just may charge you if we're going to actually start to prepare some of this material and help make these introductions. And that's where it becomes a billable thing. But we want to be able to make connections and get a grasp for who's looking for what at that stage of business. So that's why I'm calling it, you know, like a register. So I've talked about it in my email. For those who wouldn't have seen the email, let me just kind of share with you a visual of what that looks like. I don't have the actual thing on a tablet, you know, at this event, but it really is simple. It's just the starter with the ones that came to mind that I could put on a list here in this past week. And it basically says, here's a dealer that is in a certain region. We created our own regions. And so it'll say, this is a dealer in a Southeast region, for example, who's seeking a half a million dollars. Here's their software. And then there's checkbox. Is this software a White Hat Way approved software? What that really means to me is when we'll tell them, it means that they're on a software where we can reconcile the portfolio and with a high degree of confidence. OK, it's that simple. Can we reconcile their portfolio across a date range with a high degree of confidence, lease your pay or buy your pay or any of it? Then it goes on to say, is this dealer a V-Eight member? If they are a V-Eight member, what is their BMI report card score? So we give letter grades in V-Eight around a business model. And there's a lot of things that we look at there. I'll come back and offer that detail later. But The idea here is to be able to put in front of a would-be lender, hey, here's my roster of people who are shopping. Which of these, you know, would you like to meet based on the criteria, the profile that we have kind of illustrated? And, you know, of course, time and business and some of those kind of things will be relevant. And we're able to show on there how many months of validated data history does White Hat Way have on this particular customer. borrower or potential borrower. So this becomes important. This is why this month over month thing becomes important. That's why we want to be able to show to a would-be lender, hey, we've been inside this data. We personally participated in reconciling the principle across this range of time. So we anticipate that that lenders will recognize that at the minimum, it's going to potentially cut down on their due diligence time and effort because if they can get to the place where they can have confidence in the work that we've done in VA and validating this data and stacking this up and now begin familiar with our report card and what that represents in terms of the dealer's business model, then you know you start to make a compelling case but again i just want to see dealers get on that list and then of course you know we can talk about whether or not it makes sense for you to engage us i'm not here to sell anything this morning i'm making you aware that we have uh these services that we're providing and and many are finding good value in in what we provide there And it's sort of a three-step thing. Build the history, attach it to an ongoing thing where we can keep a running roster and a running onboard so that we're collecting the necessary materials, we're updating the modeling as new data comes in, as the month closes, whatever. And then the dealer simply disengages once the funding occurs. So that's basically what's happening. And so, you know, of course, we'd love to work with dealers in that regard, regardless of the stage of business that you're in and what kind of money you might be seeking. And like I say, it may be that we're going to have to position you to find private capital. Let me pause there and talk about one of the things that we created this week was a one pager. for our quarter throttle dealer to be able to take to folks that they know, whether it's that rich Uncle Joe or whether it's somebody they know from the community, where they have a relationship with somebody that's got some wealth and maybe it's an entrepreneur, it's somebody who does investments of this nature. And it's a little one pager that's created by us. It introduces us and basically says, we're the coach and risk mitigator. We're recommending that this dealer X invite people to a meeting with us and with the dealer to look at an investment proposal. We're going to show you in this virtual meeting how the cash has historically been flowing and what the program looks like if you were to participate financially. in the funding. And that way we just simply walk this dealer through a process where they can meet people who do have an appetite for this type of funding. And we know that that can be successful. We've initiated that kind of structure with many dealers over the years. And so we're right back to You know, the predictability of the rate of flow with the dealer and then do they have confidence, right? This is why we wanted to go to local community banks, folks that we know in the community, because at some level, if we're doing it in the private, they're going to want to know you. We'll probably get to the place where they'll do business if they know me and the role that we're playing. But for today, I think what we want to focus on is folks who know you and we can support that process. We can make that make sense for them to participate and make sense to provide a layer of administration and risk mitigation that sort of builds in the discipline to make it make sense. Let's talk as we wrap up here about our folks in the industry and really what collaboration looks like in my mind, because we're going to be certainly having conversations with folks in Austin. We have a number of parties that we're collaborating with. You know, in my email, I was kind of clumsy. I mentioned some of the DMS providers and some emails and not others. So I can just share with you that there are a number of providers that are cooperating with us. We're grateful for that. I'm not necessarily going to name names here today, but I can tell you that if you're a dealer who's getting a business and you want to know about software, we can share with you what we know and kind of where we're seeing that folks are. collaborative and where they have a really great system to be able to identify all the pieces that we find are essential. If you're a dealer who's looking to grow and maybe looking to move on to a new software, come and see me. I'm happy to share with you what we know about what we observe. Certainly our three years of experience in VA, we've worked with dealers. We've worked with DMS systems through dealers. We've worked directly with DMS systems. The level of cooperation that we get varies greatly. And the actual ability for us to advise a dealer or for a dealer themselves to go find the numbers that we're saying are essential for us to be able to build the same kind of structure in the modeling, the comparative analysis, the scorecards, for us to be able to build something that is comparative and has a degree of integrity. then we often can't, the dealer can't find it. And we don't always have direct experience with their software. So we can't always support them in that. But we see that that's a problem. And so we just know that this is why collaboration becomes so important and why I think this story is not going to change for me. My mission remains the same. Parties will participate. Parties will not participate. My mission remains the same. We continue to work at White Hat Way to infuse trust between buyers and sellers. So you can think about that up and down the string of buying and selling. dealers to consumers, dealers working with vendors. Our interest is in making sure that that relationship has trust baked into it. There's ways to implement things that enhance the level of trust between the buyer and the seller. And of course, now we think about that in terms of the lending side. we're of course working to create a layer of trust between the lenders and borrowers. And so I think everybody's invited to collaborate on that. And the reason I think it becomes so important at this particular stage is that when we can help dealers access funding and When they grow, then you grow. If you're a GPS provider, if you are a DMS system, if you're a payment processor, then when the dealer is well-funded and positioned to grow and continue to do business, first of all, they stay in business. And secondly, they produce more business. And selfishly, for me, I like to see... A consumer who is in a really tough spot when they can find a reputable dealer who is high character, who will support them and and and help them have a transportation solution at a difficult stage of their life. uh then that's something i also want to see happen and that is something that you know our industry is in a position to really help do that and so i think it's just one of those things where we want to we want to make sure that uh you know it's it's something that we can we can do and do it um in a way that all parties can be successful. It's a little bit cliche, but all ships are going to rise when dealers are capitalized, especially dealers of high character, then that's going to be, you know, important. So. I appreciate you tuning in. Sorry, Michelle couldn't be here today. She's really is stepping into some things that she finds a lot of joy in and that she has a lot of talents in. And so she'll still be around. She's a co-founder in the company. She will participate. you know, as it makes sense, but I just think you'll see a little bit less of Michelle going forward. I know there'll be folks out there that are disappointed, but she'll, she'll come around. She's still very much involved in the company and, and hope to have her back in our conversations, you know, as we move along here, but until then, listen, thanks for tuning in. We hope to see you back here on an upcoming episode.
