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Floor Plan Financing Floor planning, a type of asset-based financing, is a method of financing the inventory of a business. Although many types of inventory can be floor planned, the most common example is the financing of vehicles for an automobile dealership. The structures of a floor plan may vary, but a common plan would be as follows: Lender enter into a revolving credit agreement with Auto Dealer to finance the purchase of the cars from Auto Manufacturer. Lender sends the proceeds of the loan directly to Auto Manufacturer and takes a purchase money security interest in the cars. As Auto Dealer sells each car, the loan advance (or portion of the loan secured by that vehicle) is immediately paid to Lender. While the vehicle sits on the lot, Lender may require periodic payments on the loan. Lines of credit to finance a floor plan ensure that the company will have inventory in place when sales opportunities arise. Terms of repayment are matched to the nature of the business with special provisions for rental inventory and seasonal adjustments consistent with the sales cycle. Manufacturers can provide special terms to dealers across the country. Many large banks (e.g., CitiBank,) and specialty financing firms (e.g., GE Capital) offer floor financing. |
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