Legal Definitions - floor planning

Floor Planning

Floor planning, also known as floor-plan financing, is a specialized type of short-term loan provided to retailers. This financing allows businesses to purchase high-value inventory, such as vehicles, appliances, or furniture, for display in their showrooms or sales floors. The inventory itself typically serves as collateral for the loan. As each item is sold to a customer, the retailer uses a portion of the sale proceeds to repay the specific loan amount associated with that item.

Here are some examples:

• A new car dealership needs to stock its showroom and lot with a variety of models, including sedans, SUVs, and trucks, to attract customers. Instead of paying for all these expensive vehicles upfront, the dealership secures a floor planning loan from a bank. This loan allows them to acquire the inventory. As a customer purchases a specific SUV, for instance, the dealership repays the portion of the loan attributed to that particular vehicle. This process enables the dealership to maintain a diverse inventory without tying up all its operating capital.

• An independent furniture store wants to showcase a wide range of living room sets, dining tables, and bedroom furniture to potential buyers. Given the high cost of these items, the store utilizes floor planning to finance the purchase of these display pieces. The furniture on the showroom floor acts as collateral for the loan. When a customer buys a particular sofa, the store uses part of the sale revenue to pay back the lender for that specific item, allowing them to replenish their stock or acquire new models.

• A marine dealership specializing in boats and personal watercraft needs to have several different models on display for the upcoming boating season. Boats are significant investments, and purchasing them outright for inventory could severely strain the dealership's finances. Through floor planning, the dealership obtains a loan to buy these vessels. Each boat on the lot serves as collateral. When a customer buys a specific fishing boat, the dealership repays the corresponding loan amount, freeing up funds to acquire new inventory or manage other operational costs.