Floor plan financing is a boon for all kinds of dealerships. Whether you are selling heavy equipment, RVs, cars, boats, or large appliances, there are benefits to floor plan financing over traditional loans and funding options. While there are plenty of reasons most dealerships choose this kind of funding, there are two main reasons that entice businesses to choose floor plan financing.
Floor Plan Financing Helps Boost Sales
Ever been to a car dealership with a huge, empty lot? With only a handful of cars and too many balloons, these places resemble sad ghost towns. While the goal is to sell cars and keep them from sitting on the lot for too long, it is generally not a healthy sign to see a dealership — or other business — unable to replenish their merchandise.
Floor plan financing is built to address this issue. By design, this kind of financing leverages floored vehicles, equipment, or appliances as collateral. In other words, you are essentially buying your own collateral with the very loan that collateral backs. Keep in mind, floor plan financing is not without risks; your dealership is incentivized to make sales quickly in order to minimize interest as well as avoid penalties for defaulting on the loans themselves. Failure to do so can cause issues like fees and repossession. But savvy dealers and salespeople can use floor plan financing to their advantage when negotiating sales to mitigate these risks.
Just as an empty lot can be off-putting to potential customers, a full lot of shiny vehicles is much more attractive. Beyond the sheer scope of your inventory, more choices mean more potential opportunities to sell exactly what the customer wants. By finalizing that sale, that is money you can spend on replenishing your inventory and money saved on the additional interest you can reinvest in other ways.
That brings us to our second point.
Floor Plan Financing Gives Dealerships Flexibility Other Loans Can’t
With a traditional loan from the average bank, you are granted a fixed amount of money and need to repay the balance on a set schedule. While this might be useful for other businesses that need startup capital, dealerships are constantly adapting to changing market conditions involving millions of dollars worth of inventory. Because the health of a dealership is often linked to how full its lots and sales floor are, keeping new inventory floored is paramount to their success.
A nice feature of floor plan financing is that it acts as a kind of revolving line of credit, letting you leverage the same loan to buy new inventory. With that being said, it is important to work with a floor planning company that you can trust. These companies are specialized in not only determining how much financing your dealership needs (and has access to), but how to best strategize the use of those funds. For instance, after you sell a vehicle, do you buy a new one directly from the manufacturer or buy a few used ones from an auction or from private sellers?
Floor plan financing gives you the ability to build and replenish your inventory the way you want. This not only gives you more control over your dealership but gives you more control over your financing than a traditional loan.
If you are interested in learning more about floor plan financing and how to make it work for you, reach out to Floor Plan Xpress today. Our financing professionals are excited to help you strategize the best ways to grow your business through lending options tailored to your needs.