A Glendale-based firm has found success with a unique model tailored to automotive financing.
Braeger Financial Group LLC, which was formed in January 2013, raises funds from private investors to lend to auto dealerships’ credit facilities. The loans give auto dealerships the leverage they need to obtain more traditional bank loans.
“With the banks not lending, especially to smaller dealers, which is our client base, they need us desperately,” said David Braeger, chief executive officer.
Braeger recently raised $4 million for a dealer credit facility, which was then approved for another $23 million from a traditional lender.
There are few firms in the country with a business model like Braeger’s, which allows individuals to directly take part in automotive loans.
“From the business standpoint, investing in auto finance used to be a closed game, period, for the financial investor,” Braeger said.
Investors get a 7 to 9 percent return on a three to five year note, which is an attractive investment, Braeger said.
The firm has garnered interest from investment banks and some small hedge funds, he said.
“Most of it is referral business in a time when people are trying to get a return on fixed income investments,” Braeger said. “This is truly an area of someone’s investment portfolio they have never had a chance to be in before.”
The dealerships that Braeger targets are usually working with consumers who are low income or have poor credit, so they get a high interest loan from the dealership to purchase a vehicle. The dealership credit facility makes the payments to Braeger, so there is less risk of a missed payment.
“The benefit to the consumer is the fact that if we and the dealer do our job … we will increase their credit very quickly,” he said.
In its first year, Braeger has had no defaults and has grown to support $27 million in credit facilities.
“Now that we’re on the map, we think this year we should do $40 to $50 million,” he said.
Braeger has targeted dealerships in warm weather states, which have more consistent sales, in areas with poor public transit systems. Large credit facilities that complete credit reporting are key to making the investment less risky.
“If they have $20 million, $25 million or more, if we give them $3 million, we’re going to get our money back,” he said.
The company is also launching a crowdsourcing website, VroomBank.com, to allow people to make investments in its loans online in a secure FINRA and SEC-approved setting. It expects the site to go live this month, and bring in $500,000 per month.
Braeger previously worked in investment banking, but wanted to start his own business. His father and grandfather were Chevrolet dealers, so he knew the dealership world well.
“I just transferred the investment banking model to my own business,” Braeger said. “This is a completely different business model than any other financial company.”
