Legal Definitions - floor-plan financing

Floor-plan financing is a specialized type of short-term loan provided to retailers to purchase high-value inventory that will be displayed for sale to consumers. This financing is typically used for expensive items such as vehicles, large appliances, or recreational vehicles, where the retailer needs to stock a variety of costly products but doesn't want to tie up significant working capital. The inventory itself often serves as collateral for the loan, and the loan is usually repaid when the specific item is sold to a customer.

Here are some examples to illustrate floor-plan financing:

• Example 1: A New Car Dealership

  A new car dealership needs to maintain a diverse selection of models, trims, and colors on its lot to attract potential buyers. When the dealership orders 75 new sedans, SUVs, and trucks from various manufacturers, it uses floor-plan financing to pay for these vehicles. A bank provides a loan for the purchase, and the 75 cars sitting on the dealership's lot act as collateral. As each car is sold to a customer, the dealership uses a portion of the sale proceeds to repay the specific part of the loan associated with that particular vehicle. This arrangement allows the dealership to keep a full inventory without having to pay for every car upfront, managing its cash flow more effectively.

• Example 2: An Independent Furniture and Appliance Store

  An independent furniture and appliance store wants to stock the latest high-end refrigerators, washing machines, and complete living room sets from several premium brands. These items are individually expensive, and purchasing a large quantity outright would significantly strain the store's operating capital. The store secures floor-plan financing from a lender, which enables it to acquire a substantial shipment of these goods for its showroom. The furniture and appliances themselves serve as security for the loan. When a customer purchases a new sofa set, the store repays the loan amount specifically tied to that set, allowing them to replenish inventory or cover other business expenses.

• Example 3: A Marine and Boat Dealership

  A marine and boat dealership prepares for the spring and summer boating seasons by ordering several new fishing boats, pontoon boats, and personal watercraft from manufacturers. Each of these units represents a substantial investment. The dealership utilizes floor-plan financing to acquire this inventory. The lender provides the necessary funds for the purchase, with the boats and watercraft themselves serving as collateral. As enthusiasts purchase these vessels for recreational use, the dealership repays the corresponding portion of the floor-plan loan, enabling them to cycle through inventory and manage their financial obligations efficiently.