Your lender tells you that you have $500,000 available on your line of credit.

That’s good information to have.

But it doesn’t mean you suddenly have $500,000 to spend.

It means the bank is willing to lend you another $500,000. You’ll pay interest on it, you’ll eventually have to repay it, and once you draw it, that borrowing capacity is no longer available.

The more important question isn’t how much can we borrow?

It’s what are we going to do with the money?

Start With the Use of Funds

Suppose the answer is simple: We’re going to buy more cars.

That may be a perfectly good use of capital. But before drawing another $500,000, I’d want to look at the inventory you already have.

Which vehicles aren’t moving? How long have they been sitting? Why aren’t they selling?

Are they priced incorrectly? Is there a mechanical or recon issue? Are they simply the wrong vehicles for your customer base?

New inventory may turn faster, but buying more vehicles doesn’t solve the problem of aging inventory already sitting on your lot.

Now you’re carrying the old inventory and paying interest on the additional money you borrowed to buy the new inventory.

That’s a very different decision from simply saying, “We have $500,000 available.”

A Sale Doesn’t Mean the Cash Is Back

For a BHPH operator, there’s another important consideration:

How quickly does that investment convert back into cash?

Selling a vehicle doesn’t mean you’ve immediately recovered all the capital you put into it. Much of that investment has been converted into a finance receivable that will produce cash over time.

So the analysis shouldn’t stop with whether the additional inventory will sell.

What cash did we invest in the vehicle? What cash did we receive at delivery? How much did we finance? How long will it take to recover our original investment? What do we reasonably expect to collect? What losses should we expect from the additional receivables we’re creating?

And while that capital is tied up, what is it costing us to borrow the money?

Those questions tell us much more about the economics of the decision than the amount showing as “available” on a borrowing-base certificate.

Borrowing Should Have an Expected Return

There’s nothing inherently wrong with borrowing money to grow.

Debt can be an extremely useful tool in a capital-intensive business.

But the fact that capital is available doesn’t mean deploying it creates value.

If you’re going to borrow another $500,000, there should be an intentional reason for doing it and an expected economic return.

Maybe the right decision is to increase inventory and originations.

Maybe it’s opening another location.

Maybe it’s investing in recon capacity that reduces cycle times and improves inventory turns.

Or maybe the analysis shows that the best decision right now is not to borrow at all.

The answer will be different for every operator.

That’s why I don’t view unused availability as money sitting there waiting to be spent.

I view it as borrowing capacity available when the business has a productive use for it.

Availability Is a Tool, Not a Target

A borrowing base answers an important question:

How much is the lender currently willing to advance?

It doesn’t answer:

Should we borrow it?

That’s a capital allocation decision.

Before drawing additional debt, understand what you’re trying to accomplish, what’s already tying up capital inside the business, how quickly the new investment should produce cash, and whether the anticipated return justifies the cost and additional leverage.

Be intentional when borrowing.