SIOUX CITY, Iowa — A stable buy-here, pay-here dealer thirsty for a line of credit so he can stop turning away credit-damaged but potentially profitable customers meets a financial services company eager to find established rooftops with growth potential.

That's the storyline unfolding between Big Deal Auto in Sioux City, Iowa, and Spartan Financial Partners of Spartanburg, S.C. Big Deal Auto owner Brian Berkenpas obtained a $4 million line of credit last month from Spartan, which started working with dealers during the first quarter of last year.

A little more than 30 days after the capital injection, Berkenpas shared his background and store future with SubPrime Auto Finance News in a very upbeat tone.

"This money has made the possibility of us growing or even expanding all within reach and attainable," Berkenpas stressed. "I would say a year from now, our sales will double."

Big Deal Auto's Path to Low Loss Ratio

After spending several years with a franchised dealer, Berkenpas decided to open his independent store in 1990. Roughly 10 years later, he ventured into the BHPH space, a market segment that incorporates about a third of his total business.

Berkenpas believes the BHPH segment is underserved in Sioux City, which pulls consumers from Nebraska and South Dakota and has a market size of about 100,000 people. Like so many other dealers, Berkenpas watched credit availability evaporate when the recession hit during the second half of 2008.

"Everything was going along pretty good until the credit crunch at the end of '08. Then all the local banks that we had done anything with just tightened up and didn't want to have anything to do with (BHPH buyers)," Berkenpas recalled.

"We've been struggling to get financing lined up for the last three years," he continued. "It's not that there is a lack of consumers out there who need the help. It's just the lack of funds available to us to continue. Now we're able to meet those needs because we've got a long-term partner with Spartan."

During the 60-day span when Spartan looked over Big Deal Auto's portfolio, Berkenpas insisted the company had quality subprime paper to review.

"We have a 2.2 percent loss ratio on our buy-here, pay-here accounts right now. It was the best they'd ever seen," Berkenpas told SubPrime Auto Finance News. "Our collections are tremendously good. Our recovery is good."

The Big Deal Auto owner explained how his store can achieve such a performance.

"To get that percentage at that level takes a reasonable down payment from the customer," Berkenpas began.

"We're never going to be that ‘$100 down and you drive.' Or, ‘your job is your credit.' We're good at picking up the people who have had credit difficulties for loss of a job, divorce, medical bills, something that's pulled their credit score down. They have some redeeming quality," he went on to say.

With an average down payment of about $1,800, Berkenpas admits his store writes contracts that are typically larger than the average BHPH loan. They average is about $8,300 on mostly domestic models such as Chevrolet Malibu and Trailblazer, Dodge Durango and Chrysler Sebring.

"When the people have a vested interest in it to that degree, they're a lot less likely just to cough it up, not pay anymore and just walk away," Berkenpas stated. "That's been real key for us. That's why our losses haven't been as high.

"We have a larger contract, but we work on less margin with a better car and a better quality customer, which all leads to the great loss ratio we have," he added.

Spartan Financial Looking for Similar BHPH Clients

Currently, Spartan Financial Partners has lined up two dozen dealerships that have a profile similar to Big Deal Auto. President Mark Vangeison described rooftops such as Berkenpas' store as the ideal Spartan client, a lot in a small, rural city with a lot of room for growth but needs capital.

With a handful of other clients ready to come on board during the next 30 days, Vangeison highlighted that Spartan now has relationships in California, upstate Michigan and Florida.

"Our approach is very simple," Vangeison stressed to SubPrime Auto Finance News. "We do not take a cookie-cutter approach. We understand that each and every buy-here, pay-here dealer or finance company is unique. They each have something different that they bring to the market. We tailor our capital solutions to meet the underlying business philosophy and strategy of the borrower. That allows us to be very flexible in our dealer terms, advance rates, etc.

"Each and every deal will fit as long as someone is originating deep subprime auto credit," he added.

Spartan is an affiliate of American Credit Acceptance, offering two major services to dealers. Along with lines of credit, Spartan also orchestrates bulk purchases if a dealer is looking to sell a group of loans.

Although Spartan might be a young company, Vangeison pointed out his executive team holds decades of experience. The company ventured into this arena to capitalize on the subprime segment it contends will begin to grow significantly again.

"What makes us unique as a lender is the fact that we are affiliated and a division of a large indirect lender," Vangeison emphasized. "American Credit Acceptance operates two different platforms within deep subprime auto so we're buying point-of-sale contracts from franchised and independent dealers throughout the country.

"That knowledge of individual underwriting at the loan level, coupled with our expertise in collecting and serving those customers, that allows us to become a unique lender to the industry," he continued. "We have very intimate knowledge of consumer credit, collection issues and vehicle and collateral issues. It's that expertise that allows us to be a little more flexible and perhaps more aggressive than traditional lenders would be in subprime.

"Whether subprime is good or bad, high demand or low demand, doesn't matter, we're committed to the industry because we're an industry participant," Vangeison went on to say.

And the subprime market could finally be thawing after months of tight activity.

"Capital had been scarce in the industry. But in the last six months, capital providers are coming back to the subprime space," surmised Kirk Whitehead, Spartan's senior analyst. "They're starting to get a little more competition among companies like us. There are still lots of opportunities for us to work with other clients like Brian who need capital.

"Previously, the banks were just fleeing the subprime space because of the risk and not wanting to take on those types of assets in their portfolio," Whitehead added.

And success stories such as Big Deal Auto are what Spartan is banking on to cultivate more subprime clients.

"Brian told us he had to turn away deals that if he would have had the capital he could have made," Whitehead stated. "But with our program, he's able to write those deals and get customers in cars where he previously would have had to turn them away because of lack of capital."