What Is A Floor Plan Loan

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.

What is a floor plan loan.

This booklet applies to the occ s supervision of national banks and federal savings associations. Floor planning is a type of inventory financing for large ticket retail items. The floor plan facility allows the automobile dealer to obtain financing for automobile inventory. These loans are made against a specific piece of collateral i e.

This is in keeping with the common banking practice that all credit lines are required to be completely cleared at least once a year. 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. 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. Retailers use a short term loan to purchase inventory items and the loan is repaid as inventory is sold.

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

Contrary to common perceptions most car dealers do not pay cash for the. Items commonly financed through a floor plan facility are automobiles trucks recreational vehicles boats construction equipment agricultural equipment manufactured homes. 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. And in a soft economy that can pose a serious problem both for the lender and the retailer.

This booklet addresses the risks associated with floor plan lending and discusses risk management practices for floor plan lending. Floor planning is commonly used in new and used car dealerships. 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. 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.

Advances under the facility are made against specific automobiles as collateral. Floor plan finance companies are uniquely attuned to the needs of auto dealers. The dealer borrows against their retail inventory repays the.