Business Financing has a lot of options.
But that doesn’t mean every option is easily available. Most banks stay away from complex products and stick with what they know, leaving some industries in a struggle to find financing… that fits their needs.
A common example of this is Car Dealerships. They don’t have the quick-turning receivables that a traditional line of credit requires, but they also have a very uneven cash flow – so it’s hard to have set payments.
And that’s why this product was created:
Floor Plan Financing
Floor plan financing is an alternative product that’s tailored to non-traditional needs, like a car dealership.
Lenders who offer this option understand that your industry is different, and they also understand how traditional loans could limit your growth…
So they took the initiative to fix this, creating different variations of existing products.
How It Works
The main difference is in the collateral. Instead of using accounts receivable for collateral, the lender focuses on your fixed assets – like vehicles.
Every lender will have a slightly different set of rules, but for the most part – this type of financing is very similar to a traditional Line of Credit.
And by that, I mean it’s a revolving loan that has a fluctuating balance – giving you flexibility at all times of the year.
But it also have favorable repayment terms, like paying interest-only payments while the car is on your lot – then paying off a pre-determined amount when the car is sold.
They’ll also have some limitations on how much they finance, likely 90% and under.
In other words, you might have to put a 10% down payment on every car – but it’s better than 100%. They’ll also have a maximum borrowing amount, but that can always increase later on.
How It Helps, Compared to Other Options
So there’s the brief overview, and now we’ll see if it’s the best product for you.
As I mentioned a few minutes ago, Floor Plan Financing is really designed for Car Dealerships. It fits their business well and allows them to purchase high dollar inventory.
But that doesn’t mean it can’t help other companies, especially if you have the right type of inventory.
A car dealership, for example – will have a large amount of inventory that can be easily used as collateral.
This type of inventory is easily measurable and payments can be taken with the sale of each individual asset.
On the other hand, if you’re a retailer that finances fast-moving inventory (i.e. shoes) – then this type of financing might not be for you.
Not because it wouldn’t work, it just wouldn’t the most efficient route – you’d have to pay off a small amount every time you sold a pair of shoes.
That’s where a line of credit would be handy. It’s designed to finance this type of inventory, probably combining it with Accounts Receivable to create your total borrowing base.
Floor Plan Line of Credit vs Regular Line of Credit
By now, I’m sure you’re starting to realize that a Floor Plan Line of Credit is very similar to a regular line of credit. And hopefully so, because it’s really just a different variation of the main product.
Both options have interest-only payments, and both products generally let you borrow up to a certain amount of your collateral.
The difference happens after that, depending on the collateral.
A Floor Plan Line of Credit handles larger inventory that can be used as specific collateral…
While a regular Line of Credit takes the “blanket collateral” approach – using higher quantities of a smaller product – to make one source of collateral.
Is It For You?
Whether you’re gearing up for the busy season or updating your current inventory – a Floor Plan Line of Credit can be helpful for you.
It’s a great product for any company that has large assets as inventory, like a car…or maybe even a forklift.
But it’s also a great product for any company that has tight cash flow, those who’ve likely been turned down by Cash Flow Lenders.
It’s great for these companies because it’s part of the Asset-Based Financing (ABL) group, meaning the bulk of underwriting is based off asset value – not how much cash you’re making.
And a lot of different companies can fit under that umbrella, whether you’re brand new or experiencing rapid growth.
At the same time, that doesn’t mean this type of product is great for every company that has tight cash flow – other options like Accounts Receivable Financing or Purchase Order Financing might be best for you.
The main point is that there’s different financing options for every industry – and it’s important to find the product that’s designed for you.
The hardest part is finding someone who offers that product – but good news, that’s exactly what we do.
Floor Plan Financing – Recap
Whether you’re a car dealership gearing up for the busy season or a new entrepreneur looking for different options – a floor plan line of credit could be exactly what you need.
And if it isn’t the perfect product for you, then please let me know – I’ll help guide you to the right one.
Questions or comments? Please let me know below!