Start a Floor-Plan (Inventory Financing) Lender

1. 1

   Raise and structure lending capital

   Floor-plan lending is a balance-sheet business: you advance money against dealer inventory and earn it back with interest and fees as cars sell, so you need substantial lending capital or a credit facility to fund the lines. Structure your cost of capital below what you charge dealers. Undercapitalization or a mispriced spread makes the whole model unworkable, so this comes first.

2. 2

   Build dealer underwriting

   Your risk is the dealer, not the car buyer, so underwrite each dealership's financial strength, sales velocity, and management before extending a line. Set line sizes and terms to the dealer's real capacity. Sound dealer credit underwriting is what keeps your default losses manageable in a business where one failed dealer can wipe out many good ones.

3. 3

   Price interest and fees

   Traditional floor-plan revenue comes from per-unit interest that accrues while a car sits and various fees. Price so the spread over your cost of capital covers losses and overhead and still profits. Understand that dealers feel every day of interest on aging units, which both drives their turnover behavior and shapes how competitive your pricing must be.

4. 4

   Run inventory audits and curtailments

   You must verify the cars you financed still exist and are unsold, so build a physical and digital audit program and curtailment schedule (partial paydowns on aging units). Sale-out-of-trust, where a dealer sells a floored car without paying you, is the classic loss. Rigorous, frequent audits are the operational core that protects your capital.

5. 5

   Manage default and valuation risk

   Beyond individual audits, manage portfolio risk: monitor market values so your collateral does not fall below the loan, watch concentration by dealer and vehicle type, and act early on distressed accounts. Repossession and remarketing processes handle the failures. Disciplined risk management is the difference between a profitable floor-plan book and a catastrophic one.

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Best for: Lenders and finance operators with capital and credit expertise

Not for: Anyone without lending capital or credit expertise. This is balance-sheet lending, so it is not for car people without finance and audit discipline.