A dealer floor plan is a loan for your vehicle inventory. It is a plan to finance the vehicles on your floor. You may obtain a dealer floor plan from a bank or there are many dealer floor plan providers listed by clicking here. You may also go to Google, Bing, or Yahoo and type in “dealer floor plan providers”. You will then find numerous companies that will provide financing for your inventory.
A dealer floor plan is basically like a revolving line of credit. Your bank may give you a $50,000, $100,000, or even a $1,000,000 dealer floor plan although I recommend starting small with a $10,000 or $20,000 loan. After you obtain a dealer floor plan you may then purchase your inventory with your dealer floor plan. When you sell a vehicle, your bank will require that you pay off the portion of the loan that was used to purchase that vehicle.
For example, let’s say you purchase a vehicle at an auction for $5,000 then sell the vehicle the following week for $7,500. The bank would require you to pay $5,000, plus interest, on your dealer floor plan while you keep the $2,500 profit. A bank will charge you a certain amount of monthly interest for your unpaid balance every month. So you if carry an average balance of $25,000 on your dealer floor plan, your bank may require interest payments that amount to around $175 per month.
Most dealer auctions will also have a type of dealer floor plans they would like to offer you when you obtain your dealer license. Manheim dealer auctions have a dealer floor plan program called Manheim Financial Services. This is basically a revolving line of credit that you can use at Manheim auctions to provide financing for the vehicles you purchase. You can purchase your cars at Manheim, then Manheim will advance you the total amount needed to pay for the vehicles so you can immediately take them back to your lot to sell them.
Be very careful of dealer floor plans. dealer floor plans have put countless dealers out of business. I have personally seen many dealers get their license, obtain a large dealer floor plan, then buy twenty or thirty cars so they can start big. The only problem is the interest that you must pay every month on a large dealer floor plan can end up being much larger than what you expect. You might have a couple of slow months which could lead to you not being able to make your payments which could lead to your entire inventory being repossessed by your dealer floor plan company. When you get into the dealer auctions you will see several newly licensed dealers that give top dollar for numerous cars at their first auctions then are never seen at the auction again.
My best advice to any person getting into this business for the first time is to start small. Start very small. You might want to get a small dealer floor plan for $20,000 which would allow you to purchase eight cars for $2,500 each. When you begin selling your vehicles for the first time on a dealer floor plan, you should sell the vehicles for a smaller profit and pay down your balance as soon as possible. This will give you additional credibility with your dealer floor plan provider so when you request a larger dealer floorplan you will quickly be approved. Once you become established you may want to apply for a larger dealer floor plan and seek higher profits on each vehicle.
Always be prepared to make payments on your floorplan even if you have not sold any vehicles. You should try to have at least six months of your minimum floorplan payments on hand in cash so you can still make your payments if you have an extended sales drought with zero sales.