Floor plan financing is a revolving credit line that dealers use to buy the high-value units on their lots and showroom floors, with each unit financed individually and paid off when it sells. Car, RV, boat and equipment dealers rely on it because few could afford to own their full inventory outright.

Each financed item is tracked by serial number or vehicle identification number, which lets the lender tie every dollar it advances to a specific unit.

How Floor Plan Financing Works

1. Credit line. The lender approves a total line based on the dealer's size, sales history and financial strength.

2. Ordering. The dealer orders units from a manufacturer or buys them at auction or on trade-in.

3. Funding. The lender pays the seller directly, and the unit is added to the dealer's floor plan.

4. Title control. The lender usually holds the title or manufacturer's certificate of origin while the unit is financed.

5. Interest. The dealer pays interest on each unit's balance, usually monthly, for as long as it sits unsold.

6. Payoff. When the unit sells, the dealer repays that unit's balance, typically within a few days, and the room on the line is available again.

Who Uses Floor Plan Financing

The structure fits businesses that sell expensive, serialized goods that customers want to see in person.

• New and used vehicle dealers, the best-known users

• RV and camper dealers, who often face strong seasonal swings

• Boat and marine dealers

• Powersports dealers selling motorcycles, ATVs and snowmobiles

• Farm and construction equipment dealers

• Manufactured home and trailer retailers

• In some cases, sellers of high-ticket durable goods such as pianos, hot tubs or large appliances

Interest, Fees and Curtailments

Floor plan costs come in several pieces, and the full picture matters more than the quoted rate.

• Interest is usually a variable rate tied to a benchmark plus a margin, charged on each unit's outstanding balance.

• Per-unit or flooring fees may apply each time a unit is added to the line.

• Audit fees can cover the cost of regular lot checks.

• Curtailments are required principal paydowns on units that stay unsold past set dates.

Curtailments are where aged inventory starts to hurt. In a hypothetical case, a lender might require 10% of a unit's original balance after 90 days on the floor. On a $40,000 unit, that means a $4,000 payment while the unit is still unsold, and another may follow if it sits longer.

Some manufacturers subsidize interest for an opening period on new units, sometimes called free flooring. It lowers cost on fresh stock but usually ends on a fixed date, after which normal interest applies.

Lot Audits and Selling Out of Trust

Lenders send auditors to count units and match serial numbers to the floor plan, often without much notice. Missing units must be accounted for, either as sold and paid, on a test drive, or out for repair.

Selling out of trust means selling a financed unit and failing to repay the lender on time. It is one of the most serious breaches in dealer lending. It can lead to the line being frozen or called, and in some cases legal action. Dealers protect themselves by paying off each unit promptly at sale and reconciling the floor plan with their sales records every day.

Manufacturer Programs vs. Independent Lenders

Manufacturer-affiliated finance arms often provide floor plan lines to franchised dealers. They may offer interest support on new units and tie the line to sales incentives, but the line usually covers only that manufacturer's products.

Banks serve larger, well-established dealers and may bundle floor plan with real estate, working capital and deposit accounts.

Independent and specialty floor plan lenders serve used-vehicle dealers, smaller dealers and businesses buying at auction. They often approve faster and accept less history, usually at a higher cost.

Many dealers use more than one source, such as a manufacturer line for new units and an independent line for used stock.

Managing Aged Inventory

Floor plan rewards fast turnover. Every week a unit sits, interest adds up and curtailment dates get closer. Dealers that manage floor plan well tend to:

• Track days on floor for every unit and review the oldest stock weekly

• Set a firm age limit after which units are discounted or sold at wholesale

• Buy used stock based on proven local demand instead of price alone

• Build expected curtailments into monthly cash flow plans

• Match seasonal orders to realistic selling windows, especially for RVs and boats

Qualifying for a Floor Plan Line

Lenders typically look for:

• A valid dealer license and, for franchised dealers, a dealer agreement

• Business and personal financial statements and tax returns

• Industry experience and a record of sales volume

• Adequate working capital and a personal guarantee from owners

• Insurance on inventory, often naming the lender

• A dealer management or inventory system that can report units by serial number

Frequently Asked Questions

Is floor plan financing the same as an inventory line of credit?
It is a specialized form of inventory financing. The key difference is that each unit is financed and paid off individually, rather than borrowing against the total value of all stock.

Can a new dealership get a floor plan line?
It is possible, but expect a smaller line, more scrutiny of owner experience and finances, and a likely personal guarantee. Independent lenders are often the starting point for new used-vehicle dealers.

What happens to curtailments if a unit finally sells?
Curtailment payments reduce that unit's balance. When it sells, you repay whatever balance remains.

Explore Financing Options for Your Business

If your inventory needs are outgrowing your current line, compare floor plan offers on total cost, including interest, fees and curtailment schedules, not just the rate. Choose a structure that fits how fast your units turn and how your sales cycle moves through the year.