Floor Plan Financing Explained

Floor plan financing changes this dynamic to a certain degree giving borrowers more control over their collateral.

Floor plan financing explained. An auto rv manufactured home etc. 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. When each piece of collateral is sold by the dealer the. How does floor plan financing differ from other types of loans.

Floor planning is a form of financing for large ticket items displayed on showroom floors. Floor plan finance companies are uniquely attuned to the needs of auto dealers. 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. The arrangement is most commonly used when large assets such as automobiles or household appliances are involved.

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. 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. For example a dealer might be able to borrow 10 million over the year to purchase 300 new cars. Floor plan finance options are popular within the automotive industry.

With most commercial loans the collateral involved typically remains static. For example automobile dealerships utilize floor plan financing to run their businesses. How does floor plan financing work specifically to benefit auto dealers. Floor plan loans are typically made with a one year term and based on an aggregate budget.

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. 3 amount of the line. Let s say you make a profit of 3 000 per car sold. 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.

Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for retail goods. Floor plan financing is also done for large appliances mobile homes and boats among other items and these products are usually sold to consumers with a financing contract. These floor plan finance formulas incorporated with your turn time can help to make or break your dealership s profitability. These loans are made against a specific piece of collateral i e.

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.