Floor Plan Financing Explained

How does floor plan financing differ from other types of loans.

Floor plan financing explained.

How does floor plan financing work specifically to benefit auto dealers. Using cash or a bank line of credit to purchase inventory can work for some car dealers but many floor plan financing companies offer a variety of dealer specific benefits. Floor plan lenders include local and regional banks large national banks and financing companies owned by the manufacturing companies like toyota financial or ford credit. However not all inventory finance companies offer retail and dealership wholesale financing options.

These loans are made against a specific piece of collateral i e. The loans are often made with a one year term and based on an aggregate budget. 3 amount of the line. The arrangement is most commonly used when large assets such as automobiles or household appliances are involved.

With most commercial loans the collateral involved typically remains static. Floor plan financing changes this dynamic to a certain degree giving borrowers more control over their collateral. For example a dealer might be able to borrow 10 million over the year to purchase 300 new cars. For example automobile dealerships utilize floor plan financing to run their businesses.

When each piece of collateral is sold by the dealer the. Floor planning is a method of financing inventory purchases where a lender pays for assets that have been ordered by a distributor or retailer and is paid back from the proceeds from the sale of these items. Floor plan loans are typically made with a one year term and based on an aggregate budget. Like any other financing facility the line must fit the financing needs of the borrower with some restraints to avoid excessive leveraging or over extension.

An auto rv manufactured home etc. The dealer then receives payment hopefully including a profit and remits the balance to the lender who in turn releases the title to the car to the new purchaser. These floor plan finance formulas incorporated with your turn time can help to make or break your dealership s profitability. Let s say you make a profit of 3 000 per car sold.

If your holding cost per day per unit is 44 63 and your turn time is 60 days you will spend 2677 of your profit holding on to a non selling car. Floor plan finance options are popular within the automotive industry. While some lenders are unable to properly serve independent dealers nextgear capital has proudly served the independent dealer market for over ten years our floor plan financing options allow dealers to finance nearly any. Floor plan finance companies are uniquely attuned to the needs of auto dealers.

A good rule of thumb is new car floor plans that allow for 90 days of inventory and used floor plan lines that allow for 60 days of inventory.