Floor Plan Financing
What is floor plan financing?
Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for goods the borrower sells. These loans are made against a specific piece of collateral (i.e. an motor vehicles, motor bikes, earthmoving machinery, etc.). When each piece of collateral is sold by the dealer, the loan advance against that piece of collateral is repaid.
In short, Dealer Floor Plan financing allows dealers to borrow against its inventory. The dealer then repays that debt as they sell their inventory and borrows against the line of credit to add new inventory.
Motor dealers are the prime example of users of Floor Plan Finance – they have to carry a large volume of stock at high value, so they can supply vehicles to buyers in a timely manner.
Rather than use their own capital to pay the manufacturer, they use floor plan finance. The lender provides a line of credit against stock that is held. As the stock is sold, the debt is either repaid or new stock is purchased so at all times the financier has an agreed level of stock to secure the debt. If a stock check is done and there is insufficient stock then the dealer / borrower has to repay part of the finance.