Floor Plan Lending Definition

Floor planning is commonly used in new and used car dealerships.

Floor plan lending definition. Floor plan lending noun also known as wholesale lending a form of retail goods inventory financing in which each loan advance is made against a specific piece of collateral. 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. Much like a credit card a floor plan financing company extends a line of credit to a car dealer. Retailers use a short term loan to purchase inventory items and the loan is repaid as inventory is sold.

Local dealerships have a better sense than anyone what vehicles will sell best in their markets cars or trucks suv s or compacts sports cars luxury cars or more affordable models. 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. When each automobile is sold the loan advance against that particular piece of collateral is repaid. Financing the operations of a car dealership requires a specialized type of loan called a floor plan line of credit.

Simply it is a way for an auto dealer to use a lender s funds to finance the cars and until each of them is sold the lender holds title to the cars. How to pronounce floor plan lending. What you don t realize is that like most new car dealers a floor plan was used to finance the cars. The floor plan facility allows the automobile dealer to obtain financing for automobile inventory.

Local dealerships purchase their inventories through financing called floor plan lending here s how it works. Advances under the facility are made against specific automobiles as collateral. Supplementing working cash with a floor plan is a tried and true method to grow business. This booklet addresses the risks associated with floor plan lending and discusses risk management practices for floor plan lending.

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.