Inventory and floor plan financing

There are two main kinds.

Floor plan financing (for dealers). The Office of the Comptroller of the Currency (OCC) describes it as inventory financing for a dealer of consumer or commercial goods, where each advance is made against one specific item: cars, trucks, boats, RVs, construction and farm equipment, manufactured homes, large appliances, furniture and similar goods.

• The lender usually pays the manufacturer or supplier directly when the item ships to you, often for 100% of the invoice cost of new goods; used goods get less.
• When you sell the item, you repay that advance. The OCC says dealers selling in large volume are usually given about three days.
• If an item does not sell within a set time, you must pay down part of its advance each month (a curtailment). The OCC gives the example of 10% a month from the tenth month on a new car.
• The lender checks your lot regularly. Selling an item without repaying its advance is called selling "out of trust", and the lender will want that money at once.
• Floor plan lines often come with the manufacturer's promise to buy back stock that does not sell.

Inventory loans (for other businesses). A lender takes a lien on your stock and lends a share of its value, often as part of a line that also lends against your receivables. The OCC says inventory advances generally range from 20% to 65%, lower than for receivables, because stock must still be sold before it turns into cash. Finished goods and commodity-like raw materials get the most; work in progress is often left out, and so is perishable, specialized, out-of-date or consigned stock.

Watch for: a supplier that sold you goods on credit may have a claim on them that ranks ahead of the lender (a purchase money security interest), which can cut what you can borrow. The SBA's working capital lines (CAPLines) cannot be used for floor plan financing.