What Is A Floor Plan Loan

Contrary to common perceptions most car dealers do not pay cash for the.

What is a floor plan loan.

This booklet addresses the risks associated with floor plan lending and discusses risk management practices for floor plan lending. Floor planning is a type of inventory financing for large ticket retail items. How does floor plan financing work specifically to benefit auto dealers. The dealer borrows against their retail inventory repays the.

The loans are often made with a one year term and based on an aggregate budget. When each automobile is sold the loan advance against that particular piece of collateral is repaid. 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 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.

Items commonly financed through a floor plan facility are automobiles trucks recreational vehicles boats construction equipment agricultural equipment manufactured homes. Floor plan finance companies are uniquely attuned to the needs of auto dealers. Retailers use a short term loan to purchase inventory items and the loan is repaid as inventory is sold. An auto rv manufactured home etc.

And in a soft economy that can pose a serious problem both for the lender and the retailer. Floor planning is commonly used in new and used car dealerships. This booklet applies to the occ s supervision of national banks and federal savings associations. Advances under the facility are made against specific automobiles as collateral.

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 floor plan facility allows the automobile dealer to obtain financing for automobile inventory. 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. 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. For example a dealer might be able to borrow 10 million over the year to purchase 300. Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for retail goods.