Whether you’re new to dealership management or a legacy owner, you know that cash is king and managing cash flow is a daily, hands-on activity. Even the most successful and profitable dealerships can get into a cash crunch every now and then. The good news is that there is an inventory financing option specifically for independent automotive dealers called dealer floorplan financing that can help.
Working with an auto finance company can provide credit opportunities and cash flow flexibility that can fuel car dealerships’ growth opportunities. Let’s take a closer look at how dealer floor plan financing works and the numerous benefits it provides.
>> Floorplan glossary: terms you need to know
What is a dealer floorplan?
In the automotive industry, a dealer floorplan (or floor plan) is a type of loan available through a finance company that provides a revolving line of credit, allowing an automotive dealer to obtain financing to purchase inventory.
These loans are made for various types of inventory like a passenger vehicle, an RV, or a motorcycle. When the dealer sells the vehicle off the lot, the loan advanced against the financed inventory is repaid to the financing company. It’s kind of like using a credit card.
>> Floorplan glossary: terms you need to know
How can floorplan financing help automotive dealers?
There are a number of benefits of floor planning versus paying for auto inventory in cash. Here are some of the most important:
Grow inventory faster
To sell more vehicles, you’ll need more vehicles on your lot. But if you don’t have cash reserves on hand, increasing your inventory volume can be tricky. The cycle of receiving cash for a sale and needing it to replenish your inventory won’t always sync up.
Floorplan financing expands the pool of money available to your dealership. You don’t have to rely on a sale to be able to buy new inventory at auction—you can floor purchased inventory instead, and pay it off once it’s sold. And the additional profit you make from moving more vehicles through your lot is the growth engine your dealership needs.
Improve cash flow
When every dollar from a sale has to go toward new inventory, inecessary investments like facility maintenance and upgrades or even payroll can be difficult to make. Floorplan financing allows a dealer to finance their inventory purchases and concentrate their cash on non-inventory expenses instead.
Make purchasing inventory easier
At auto auctions, cash payments are time-consuming and involve extra paperwork and fees. Many auctions have close relationships with floorplan financing providers, making the checkout process much faster.
Floorplan financing can help out with non-auction purchases as well. That means no more missing out on a great deal through a customer trade-in just because cash is tight –just add it to your floor plan line of credit.
Match your financing to your dealership’s needs
If you deal in specialty inventory like RVs and powersports, there are floorplans designed to cater to the unique sale timelines that correspond with specialty vehicles. Salvage and reconditioning-focused dealers can find longer terms that allow them to get vehicles frontline-ready. And these lines of credit can be mixed to allow dealers to match each new unit to the right floorplan.
>> Learn more about the advantages of floorplan financing over cash
Floorplan financing provides a revolving line of credit, allowing an automotive dealer to obtain financing to purchase inventory.
What types of dealer floorplan financing programs are available?
There are a wide range of dealer floor planning program options available to meet dealers’ needs. Here are a few types of floorplan financing that are most commonly seen:
Standard automotive floorplan
The specifics of this kind of line of credit will vary from lender to lender, but in general it covers your typical retail and wholesale inventory, often with 30/45/60-day term lengths. However, every auto finance company will have their own fees, interest rates, and term lengths.
Non-auction purchase financing
Dealers often find great vehicles away from the auction. Whether it’s a dealer to dealer purchase, a wholesale purchase, or a customer trades in a car or sells to the dealer, many floorplan financing providers offer options for financing non-auction purchases.
Salvage floorplan
Salvage auctions are great sources of inventory for dealers, but often require extra reconditioning time, making a shorter floorplan term unwieldy. Floorplan terms built specifically for salvage help make a longer turn time more financially viable.
Specialty inventory floorplans
If your dealership sells specialty vehicles like powersports or RVs, a floorplan with longer terms, lower curtailments, and an easier route to funding non-auction purchases can be much more cost-effective than a standard floorplan.
>> Learn more about automotive financial services available to dealers
Dealer floor plan financing term length
Floorplan term length is one of the easiest ways a dealer can manage carrying costs. Term length generally falls into two categories—long-term and short-term floorplans.
Depending on the individual needs of a dealer, each unique market, and the specific floored unit, the effectiveness of short- and long-term floorplans varies. And a dealer isn’t locked in to one or the other, as floorplan financing companies typically offer a range of options to meet dealer needs. The bottom line is the dealer’s bottom line—each scenario is different, so choose the one that makes sense for the situation.
>> Learn more about floorplan financing term length
Why should automotive dealers choose AFC floorplan financing?
There are a number of floor plan companies that a dealer can choose from—so why pick AFC? For one, we’ve been pioneers in the floorplan industry since 1987, and we understand a dealership business model and the unique challenges that dealers face. But there are also a number of perks of an AFC floorplan that set us apart from the pack. Let’s look at a few of them.
- Dedicated local representatives. You won’t be put into a corporate call queue and connected to someone who doesn’t know your account. AFC assigns a local team dedicated to servicing your business with adequate decision-making power.
- Auction intermediary. Your local AFC branch assists with real-time flooring and gate pass releases, as well as title issues and other auction needs. No more cash transaction fees or worrying about overdrafting when titles come in.
- Cash flow protection. AFC offers financial flexibility with a $0 principal curtailment program called Principal Pass. You elect when to use it or pay principal down regularly—it’s your ultimate rainy day fund!
- Lien pay service. Don’t tie up cash flow in lienholder payoffs—AFC can help verify payoff, remit funds, and follow up on your behalf. Plus, we’ll identify title problems so timely corrections can be made!
- Inventory management. With the AFCDealer® platform, you can manage your floored inventory 24/7, from requesting title releases to flooring trades to requesting a curtailment extension.
Grow your dealership with floor plan financing
Paying for inventory exclusively with cash may feel prudent, but it truly can restrict your dealership’s ability to grow. No matter what type of floorplan financing solution you choose, it can be a growth catalyst when leveraged properly.
Ready to see cash flow issues in your rearview mirror? Find out what a floorplan line of credit can do for your business today.
Disclaimer: Descriptions of AFC floorplans are for illustrative purposes only. Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing.
“AFCDealer®” is a trademark of Automotive Finance Corporation.
