The phrases “floor plan financing” or “floor planning” are thrown around often in auction and dealership circles. However, do you really know what the terms mean and how does an auto dealer floor plan line of credit work?

To put simply, floor plan financing and floor planning work almost exactly like credit cards that are made for the specific purpose of buying vehicle inventory. A credit card is issued by the bank to a person. The person who has received the credit card`

How Does Floor Plan Financing Work?

Similar to a credit card, floor plan financing companies extend lines of credit to car dealers. The dealers will then use the line of credit to buy inventory from auctions and from an array of other sources. If a dealer decides to buy a vehicle on the floor plan, it will take the car back to the lot. If the car doesn’t sell the vehicle within the determined amount of time, the dealer is charged a small fee. As the dealer sells the inventory they have purchased, they will repay the original loan they received.

With the floor plan, there is an initial investment needed for purchasing a certain unit. This is typically a fraction of the vehicle’s true purchase price. When the vehicle sells to a consumer, a floor planning dealer can immediately see profits, repay the initial loan value, along with fees and interest, and have the flexibility to keep funds in play for the dealership.

How Is This Financing Option Going to Benefit Auto Dealers?

A floor plan finance company has a unique understanding of what auto dealers need. Using a bank line of credit or cash to purchase inventory may be possible for some dealer, but some floor plan financing companies also offer several dealer specific benefits. Along with freeing up a dealer’s cash on hand, this financing option also offers more flexibility and payment extensions, when needed. The services also include records management, title services, and collateral protection.

While the concept of floor plan financing for auto dealers may seem confusing, it can actually be quite beneficial for many automotive dealers and is something they should consider looking into to grow their inventory and the ability to continue finding success in the industry as the competition grows and changes with each passing year.