What Is A Floor Plan Loan

Retailers use a short term loan to purchase inventory items and the loan is repaid as inventory is sold.

What is a floor plan loan.

The loans are often made with a one year term and based on an aggregate budget. This is in keeping with the common banking practice that all credit lines are required to be completely cleared at least once a year. The dealer borrows against their retail inventory repays the. Contrary to common perceptions most car dealers do not pay cash for the.

Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for retail goods. Also if inventory financed by a floor plan loan is moving slower than expected the lender may ask for payment from the dealer for interest and possible depreciation of its collateral. These loans are made against a specific piece of collateral i e. Floor planning is commonly used in new and used car dealerships.

An auto rv manufactured home etc. How does floor plan financing work specifically to benefit auto dealers. And in a soft economy that can pose a serious problem both for the lender and the retailer. 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.

When each automobile is sold the loan advance against that particular piece of collateral is repaid. Floor planning is a type of inventory financing for large ticket retail items. 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. Dealer floor plan financing frequently asked questions for borrowers and lenders what is floor plan financing.

Floor plan lending is a form of inventory financing for a dealer of consumer or commercial goods in which each loan advance is made against a specific piece of collateral. Advances under the facility are made against specific automobiles as collateral. Retail floor planning also referred to as floorplanning or inventory financing is a type of short term loan used by retailers to purchase high cost inventory such as automobiles these loans are often secured by the inventory purchased as collateral. Floor plan finance companies are uniquely attuned to the needs of auto dealers.

For example a dealer might be able to borrow 10 million over the year to purchase 300. Floor plan loans typically require that all collateral vehicles on the floor plan loan must be paid off at the end of the one year term of the floor plan loan. This booklet addresses the risks associated with floor plan lending and discusses risk management practices for floor plan lending.