What it means
Floor planning, also called floor plan financing or wholesale finance, sits between a manufacturer and a retailer. A lender advances the wholesale cost of each unit, takes that unit itself as security, and charges interest until the dealer sells it.
The arrangement matters because dealers of cars, caravans, agricultural machinery and marine equipment cannot realistically tie up cash in a full showroom. A 40-vehicle forecourt can represent well over a million dollars of stock, and few independent dealers hold that much spare capital.
Each unit is financed separately and identified by its serial or vehicle identification number. When the item sells, the dealer must repay that unit's advance within a short window, often between 24 and 72 hours.
Lenders protect themselves with surprise physical audits, checking that every financed unit is either still on the lot or properly settled. A unit that has been sold without the advance being repaid is described as sold out of trust, and it is treated as a serious breach that can end the facility immediately.
Interest is charged only on drawn balances, so the cost rises the longer stock sits unsold. That gives dealers a direct financial reason to keep inventory moving, which is why ageing stock reports are among the most closely watched numbers in the trade.
In practice
Real-world examples.
Example
A family-run car dealership uses a floor plan facility from the manufacturer's finance arm. Each vehicle is drawn down separately when it arrives on the transporter, and the advance is repaid the day after the customer's payment clears. The dealership tracks a stock ageing report weekly because any car past 90 days starts eating its gross margin.
Example
A boat dealer takes delivery of eight new cruisers ahead of the spring season, financed unit by unit. Because sales are seasonal, the dealer negotiates a curtailment schedule allowing partial repayments rather than full settlement at 180 days. That flexibility keeps the showroom stocked through a quiet winter.
Example
An agricultural machinery distributor floors combine harvesters worth $350,000 each. The lender conducts a physical audit twice a year, matching serial numbers on the yard against the financed list. One machine had been delivered to a farm on a trial basis without paperwork, and the distributor had to settle that advance immediately.
Think of it
“Floor planning is borrowing against inventory-you buy products with the loan, pay it back as they sell.
Formula
Calculation
Floor plan interest = financed balance x annual interest rate x (months held / 12).
A car dealership floors 40 vehicles at an average wholesale cost of $30,000 each, so the financed balance is 40 x $30,000 = $1,200,000. The floor plan facility charges 8% a year. Annual interest = $1,200,000 x 0.08 = $96,000, which is $96,000 / 12 = $8,000 per month. If the average vehicle sits on the forecourt for 3 months, total interest for that cycle = $8,000 x 3 = $24,000. Spread across the 40 vehicles that is $24,000 / 40 = $600 of finance cost per car, which must be covered by the gross margin on each sale. Cutting average days on the lot from 3 months to 2 months would save $8,000 a month of interest, or $96,000 over a year at this stock level.Case study
Seen in the real world.
Harlow Marine Centre is a fictional boat dealership used here purely for illustration. It ran a $2,000,000 floor plan facility at 9% a year, which cost roughly $15,000 a month in interest, and it treated that cost as a fixed overhead nobody could influence.
A new commercial manager broke the interest charge down by hull. She found that six older display models had been sitting for more than 300 days each and were absorbing about $4,800 a month between them, more than the gross profit the shop earned on a typical new boat.
The business discounted those six hulls to clear them, tightened its ordering so that stock arrived closer to the selling season, and set a hard rule that no unit could pass 180 days without a price review. In this illustrative account the average financed balance fell by a quarter and the annual interest bill dropped by around $45,000.
Watch out
Common mistakes.
- Treating floor plan interest as a fixed overhead rather than a cost driven directly by how long each unit sits unsold.
- Spending the proceeds of a sale before repaying the advance on that specific unit, which puts the dealer in breach of the facility.
- Assuming floored stock belongs to the lender and can be ignored in the accounts, when the dealer usually recognises both the inventory and the matching liability.
Questions
People also ask.
How is floor planning different from an ordinary business loan?
A floor plan is secured against specific identified units and is repaid unit by unit as each item sells, rather than being repaid on a fixed schedule.
Who provides floor plan facilities?
They come from manufacturer finance arms, specialist wholesale lenders and some commercial banks, and terms often depend on the brand being stocked.
What is a curtailment?
It is a scheduled partial repayment required once a unit has been financed beyond an agreed age, designed to stop lenders funding stock that is not selling.
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