Floor plan financing lets dealers of high-value goods such as vehicles, boats and equipment finance each unit of stock individually, repaying that unit's advance when it sells. Kitehill Commercial Capital, a small-business funding broker in Greenville, South Carolina, explains how it works and how it compares with inventory financing; lending partners decide.
| What it is | Unit-by-unit financing of a dealer's stock |
|---|---|
| Repayment | Each unit's advance is paid off when it sells |
| Watch for | Curtailments on aged stock, floor checks, payoff deadlines |
| Suits | Vehicles, boats, equipment and other serial-numbered goods |
| Kitehill's role | Broker, not a lender |
What floor plan financing means
The name comes from the showroom floor. A dealer needs a lot full of units to sell, but each unit is expensive and may sit for weeks or months. A floor plan lender pays the manufacturer or distributor for each unit as it is delivered, holds a security interest in that specific unit, and is paid back, unit by unit, as each one sells. The dealer's limit then frees up for the next delivery.
How it works, unit by unit
- A limit is set. The lender sets a total credit limit for the dealer's stock.
- Units arrive and are funded. Each delivery is recorded against the limit, usually by serial or vehicle identification number.
- Interest accrues per unit while that unit is in stock.
- The unit sells and is paid off. The dealer repays that unit's advance from the sale proceeds, typically within a short, contractually set window.
- The limit revolves. The repaid amount becomes available for new stock.
Curtailments and aged stock
Lenders do not want units sitting unsold indefinitely. Most floor plan agreements require curtailments: if a unit has not sold after a set period, the dealer must pay down part of its advance, and further reductions follow at later intervals. Curtailments push dealers to move aged stock, and they can become a cash strain if many units age at once. Read the curtailment schedule as carefully as the interest terms.
Floor checks and audits
Because the lender's collateral is the stock itself, it checks that the stock is still there. Expect periodic floor checks, in which an auditor matches the units on the lot against the lender's records. A unit sold without its advance being paid off on time is a serious breach in almost every floor plan agreement, so dealers need tight paperwork between the sales desk and the books.
Floor plan financing requirements
Each lender sets its own requirements. Common ones include:
- An established dealership, often with a manufacturer or distributor relationship.
- Stock with serial numbers that can be tracked unit by unit.
- Financial statements and bank statements showing the dealer's sales history.
- Agreement to floor checks and timely payoff when units sell.
- Personal guarantees from the owners, in many cases.
A floor plan example, in round numbers
Illustration only: the numbers describe stock and timing, not any lender's terms. A dealer of compact tractors receives six units. The floor plan lender pays the distributor for all six, and each unit's advance starts accruing interest on delivery. Two sell in the first month, and the dealer pays off those two advances from the sale proceeds, freeing that part of the limit. Three more sell over the next two months. The last unit is still on the lot when the curtailment date arrives, so the dealer pays down part of its advance even though it has not sold.
The lesson is that the cost of a floor plan depends less on the headline price than on how long each unit sits. Fast-turning stock carries little interest; slow-turning stock carries interest and curtailments.
Floor plan versus inventory financing
| Feature | Floor plan financing | General inventory financing |
|---|---|---|
| Collateral | Each financed unit, tracked by serial number | Inventory as a whole, often valued at cost |
| Repayment | Each unit's advance is paid off when that unit sells | As goods sell overall, or on a fixed schedule |
| Monitoring | Floor checks against a unit list | Periodic inventory reports or inspections |
| Suits | High-value, serial-numbered stock | Many lower-value items, mixed stock |
A store selling hundreds of lower-value items would rarely use a floor plan; inventory financing or a line of credit usually fits better.
Questions to ask before signing a floor plan agreement
- When does interest start on each unit: on delivery, on invoice or on a set date?
- What is the curtailment schedule, and what happens if several units age at once?
- How soon after a sale must the unit's advance be paid off?
- How often are floor checks, and who pays for them?
- What happens to units that are damaged, demonstrated or used as loaners?
- Does the lender have rights over other business assets as well as the financed units?
The answers decide the real cost of a floor plan far more than the headline rate does.
Where Kitehill fits
Kitehill's lending partners offer inventory financing. Whether a dedicated floor plan facility is available depends on the partner and on the kind of stock, so if you are a dealer, describe your units and your sales volume and we will tell you honestly what is on offer. Greenville County had 1,907 retail and 753 wholesale employer establishments in 2023 (U.S. Census Bureau, County Business Patterns 2023), many of them carrying stock that has to be paid for before it sells. More guides are in the resources section.
By Kitehill Commercial Capital · Updated
A question for the Greenville office?
Unsure which type fits? Call, or start online.