A floor plan is a form of retailer financing for large ticket items displayed on showroom floors or lots, car dealerships especially. Specialty lenders, traditional banks, and finance arms of manufacturers provide short-term loans to retailers to purchase items and they are then repaid as the items are sold.
Floor plan financing allows auto dealers to use a lender’s money to finance their inventory. The dealer emerges from the arrangement with a large selection of vehicles customers can drive straight off the lot should they please. Up until the time those cars are sold to the end-user, the lender retains their titles. Without such an arrangement, most dealerships wouldn’t be able to keep anywhere near the ideal volume of merchandise they need in their showrooms, ready for an impulse buy or immediate, same-day sale.
From a dealer’s perspective, floor plan financing is a practical way to streamline inventory acquisition and reduce administrative costs. At the same time, consumers benefit from having a larger selection of available vehicles to choose from. Floor planning is a flexible way to finance inventory for a dealership, but in the cyclical industry of automobiles, it must be managed responsibly so that the financing cost burden does not exceed the dealership’s capacity to repay.