Things To Keep In Mind When Choosing A Floor Plan Financing Option

When auto dealers are looking for financing options for their inventory, they often turn to dealer floor plan providers. These companies offer loans that can be used to purchase inventory, as well as lines of credit that can be used to cover the costs of operating a dealership. While dealer floor plan financing is a standard operating strategy for many auto dealers, there are a few things to keep in mind before choosing a provider.

First, it’s important to understand the nuances of how dealer floor plan financing works. Here’s a quick review on the overall process of floor planning. Essentially, the lender loans the dealer money that can be used to purchase inventory across wholesale channels. As car are sold, the dealer then pays back the loan plus interest and fees. Once the loan is paid off, the provider releases the title to the vehicle back to the dealer. This is an obvious oversimplification as there are many layers of inventory financing given the type of institution lending money and the characteristics of the borrowing dealer.

That said, dealers should always compare plan terms beyond the quoted interest rate. Why? Because – Fees, Fees, Fees. This is an industry standard practice that makes determining your actual costs challenging.To understand what you’ll pay for each car loan, pull your inventory data from the last 3-6 months and share it with your potential lender’s account representative to see if they can run a cost analysis for you. At Lever, this is a standard practice before underwriting a dealer so everyone is clear on the true cost of the program. 

If you don’t have this data handy or you’re not comfortable sharing your vehicle inventory turn numbers, at least ask the lender to provide a fee sheet and give them a normal sales scenario for a car on your lot. They should be able to walk you through a per unit cost scenario.

Unfortunately, over the years incentives and objectives have become contrary between floor plan lenders and car dealerships. If a lender is willing to go under the hood at during the term discussions, it’s a good indicator that they are a “dealer-first” lender.

It’s also important to consider account management of floor plan. Some providers will disappear after the funding has been sent to the dealer and will check in only when repayment is needed. Most floor plan lender reps oversee hundreds of independent auto dealers, so this isn’t surprising. 

However, given that floor plan financing is used as an operational and dealership growth strategy, you should explore lenders that offer more hands-on account management. Having support and extra eyes on inventory and cash management is a huge advantage for dealers that are tasked with front office and back office management. If you have the confidence that your lender is thinking about your account strategically, it gives dealer confidence that their floor plan program is allowing them to grow vs. burgeoning costs. 

At Lever, our Account Managers have been in the industry for years and have the mandate to routinely check in on their dealers. This may be a quick “hello” or a deeper discussion if notice any improvements that can be made with their inventory strategy. 

Finally, it’s always a good idea to have access to floor plan tracking and dashboards. While it may not be a priority, auto dealership operators should look at the tech capabilities of their lenders.

Since dealers are very busy, having an easy way to log into a dashboard, check inventory, request funding, and payoff loans is crucial for operations. Financing is complex and can be a convoluted process. If your lender has a centralized platform that shows all inventory and program structures, it’s will give your dealership peace of mind that your floor plan financing is managed. 

Reach out to Lever Auto’s team today for a cost analysis and/or a demo of our program and technology. We keep things simple and our Account Managers will guide you through the application and onboard process.