CASE STUDY: Floor Plan Financing for a Sydney Car Dealership
Illustrative scenario: Details may be hypothetical or modified to preserve confidentiality. Finance availability and terms depend on the applicant, eligible inventory and lender assessment.
A growing car dealership in Sydney specialised in late-model and imported vehicles. Customer demand was strong, but capital was tied up in vehicles awaiting arrival and sale.
The dealership explored floor plan financing to reduce the amount of owner capital tied up in eligible vehicle inventory while preserving cash for wages, rent, marketing and other operating expenses.
Floor Plan Financing
Floor plan financing is a business finance facility used by motor dealers to fund eligible vehicles held for resale.
Advances are commonly linked to individual vehicles. When a financed vehicle is sold, the amount attributable to that vehicle will generally need to be repaid within the period specified by the lender. The repaid amount may then become available to fund other eligible stock, subject to the facility limit, lender approval and ongoing compliance.
Costs, security requirements, repayment events and stock-ageing rules vary between lenders and facilities.
The Business Challenge
The dealership was required to pay for vehicles before they arrived in Australia and before sale proceeds were received. As stock levels increased, more cash became tied up in vehicles that were in transit, undergoing preparation or displayed for sale.
This restricted the dealership’s ability to:
respond quickly to customer demand;
maintain a broader mix of vehicles;
purchase suitable stock when opportunities arose; and
retain sufficient working capital for day-to-day operations.
A general business line of credit was also considered. While a line of credit can provide flexible working capital, it may not offer the same vehicle-by-vehicle funding, monitoring and repayment structure as a dedicated floor plan facility.
The Indicative Funding Structure
The dealership considered a revolving floor plan financing facility under which approved vehicles could be funded individually within an overall facility limit.
Depending on the lender and facility, features may include:
an approved limit based on the dealership’s financial position and eligible stock;
advances against qualifying vehicles;
interest charged on funds drawn, together with applicable fees;
repayment when a financed vehicle is sold or reaches another specified repayment event;
renewed availability following repayment, subject to the facility terms;
PPSR security over financed vehicles or other business assets;
stock reporting, audits and insurance requirements; and
reductions or repayments when vehicles exceed agreed ageing periods.
A lender may also require guarantees or additional security. These requirements should be assessed carefully before accepting a facility.
The Australian Government’s PPSR guidance confirms that motor dealers may be able to obtain finance using floor stock as collateral. It also explains how security interests in vehicles and other business property may be registered on the Personal Property Securities Register.
How Can Floor Plan Financing Support Cash Flow?
A suitably structured facility may allow a dealership to fund eligible stock without paying the full acquisition cost from existing cash reserves.
This can help align part of the dealership’s borrowing with vehicle turnover. However, it does not remove the cost or risk of holding stock. Interest, fees, insurance, audit obligations and aged-stock repayments can affect cash flow, particularly when vehicles take longer than expected to sell.
The dealership therefore needs to model both normal and slower stock-turnover scenarios before proceeding.
What Will a Lender Assess?
Requirements vary, but a floor plan finance lender may consider:
the dealership’s trading history and management experience;
motor dealer licensing and regulatory compliance;
historical sales volumes, margins and stock-turnover periods;
the age, value and type of vehicles being funded;
existing debt and PPSR registrations;
cash flow and capacity to meet interest, fees and required repayments;
stock-management, insurance and reporting systems; and
any guarantees or additional security being offered.
Imported, prestige, specialist or older vehicles may be treated differently depending on the lender’s eligibility rules.
Potential Benefits and Trade-offs
Potential benefits may include:
reducing the amount of owner cash committed to eligible inventory;
increasing purchasing flexibility within an approved limit;
matching vehicle-level funding more closely with stock turnover;
preserving working capital for operating expenses; and
creating clearer reporting around financed stock.
Potential trade-offs may include:
interest, establishment, audit and ongoing facility fees;
stock-ageing limits and mandatory reductions;
lender controls over vehicle eligibility and sale proceeds;
regular inventory reporting and physical audits;
security over vehicles or other business assets; and
enforcement risk if the dealership does not meet its obligations.
Whether these features are appropriate depends on the dealership’s turnover, margins, cash flow, stock profile and risk tolerance.
Frequently Asked Questions
What is floor plan financing for a car dealership?
Floor plan financing is a business facility that may fund eligible vehicles held by a dealership for resale. Each funded vehicle is generally monitored under an overall approved facility limit.
When is floor plan finance repaid?
Repayment is commonly required when a funded vehicle is sold. A lender may also require repayments when stock reaches an ageing deadline or another event specified in the facility agreement.
Can floor plan finance be used for imported vehicles?
Potentially. Eligibility can depend on the vehicle, supplier, import stage, documentation, location, valuation and lender policy.
Is floor plan financing the same as a business line of credit?
No. A general line of credit can be used for several business purposes, whereas floor plan finance is usually linked to eligible inventory and includes vehicle-specific controls and reporting.
Is property security always required?
Not necessarily, but the financed vehicles will commonly form part of the lender’s security. A lender may also require PPSR registrations, guarantees or security over other assets.
Discuss Floor Plan Financing
Fairlane Finance assists established motor dealers in Sydney, NSW and across Australia to assess commercial finance options and prepare funding applications.
If you are considering finance for vehicle inventory, discuss the proposed facility limit, eligible stock, total costs, security requirements and repayment conditions before proceeding.
Considering funding for a business or investment?
Explore practical funding options and speak with a specialist who understands commercial and investment finance.
DISCLAIMER: This case study is illustrative only and may be hypothetical or partially fictitious. Details may be modified to preserve confidentiality and must not be relied upon as a representation of an actual client outcome.
This article provides general information about business-purpose finance and does not constitute financial, credit, legal, tax or accounting advice. Finance availability, facility limits, costs, security requirements and terms are subject to individual circumstances, lender criteria and approval.
Commercial finance may involve interest, fees, guarantees and security over business or personal assets. Secured assets may be at risk if contractual obligations are not met. Consider obtaining independent professional advice before entering into any finance arrangement.
