To start and operate a Car Dealership in Australia you need to have access to significant amount of funds. If you’re planning to buy and sell new or used cars in Australia, having access to finance is crucial for gaining car inventory, managing cashflow and most importantly ensuring smooth operations.
When it comes to financing a car dealership in Australia one of the most used financing models is Floor Plan Financing. A question that many startup new car dealers in Australia ask is what is floor plan financing?
In this blog EasyCars will go into detail of floor plan financing, it’s benefits and what you need to consider for your dealership.
Let’s get into it!
What is Floor Plan Financing?
Floor plan financing in Australia is an ongoing line of credit that allows car dealerships new and used to purchase cars from manufactures or wholesalers to sell. Compared to traditional loans where you need to pay principal and interest immediately, the lender will pay the wholesaler or manufacturer directly and the dealer pays the amount back when the vehicle is sold. The biggest benefit of floor plan financing is it allows dealers to stock a diverse range of cars for sale without needing significant upfront amounts of capital.
How Floor Plan Financing Works
- Establishing a Line of Credit: The first step to getting floor plan financing at your dealership is to establish a line of credit with a lender of your choice. The credit limit or the amount that you are able to borrow to purchase cars to sell is often determined on your dealerships financial health, sales volume and most importantly your creditworthiness.
- Purchasing Inventory: The second step to getting floor plan finance is to purchase inventory from a manufacturer, car auction house, wholesaler or other suppliers. The lender of your choice will then pay the seller directly and the vehicles can be added to your dealerships inventory.
- Repaying the Loan: Once a vehicle that you have purchased under a floor plan finance agreement is sold, you will then need to repay the floor plan loan. Interest is charged typically on a monthly basis and the principal is paid when the vehicle is sold to a customer.
Benefits of Floor Plan Financing
- Preserves Cash Flow: The biggest benefit of Floor Plan financing is it allows dealers to maintain strong cashflow and keep costs in check as they operate. Dealers can use funds for other operational expenses such as staff, marketing, overheads etc.
- Flexible Inventory Management: Another benefit of Floor Plan financing is dealers can quickly adjust their inventory to meet customer demands without the without the headache of immediate full payment.
- Potential Discounts: This may surprise you but many manufacturers and wholesalers can offer discounts to dealers who use floor plan financing, reducing the overall cost of acquiring inventory.
- Improved Cash Flow: By only having to pay the principal amount when the vehicles are sold, floor plan finances helps dealerships manager their cash flow more effectively.
Considerations for Floor Plan Financing
- Interest Rates and Fees: Like all loans in Australia Floor plan financing for dealerships comes with interest rates and fees that can accumulate if your cars do not sell quickly. Dealers need to be mindful of these costs and aim to sell vehicles as fast as possible to avoid hefty interest charges.
- Audit Requirements: Floor Plan Lenders that a dealership uses may conduct periodic audits to verify the inventory and ensure the funds are being used appropriately. It is a requirement that dealers maintain accurate records and be prepared for these audits.
- Repayment Obligations: Even if a vehicle remains unsold, dealers are still responsible for paying the interest on the loan.
Steps to Secure Floor Plan Financing
- Assess Your Financial Health: Before applying for floor plan financing at your car dealership, assess your dealership’s financial health. Make sure that all of your financial statements, including balance sheets, income statements, and cash flow statements, are up-to-date and paid.
- Research Lenders: The biggest mistake that you can make when it comes to floor plan financing is not shopping around for the best lender. Research potential lenders that offer floor plan financing. Look for lenders with experience in the automotive industry and a good reputation for working with dealerships. Most importantly compare floor plan lender terms, interest rates, and fees to find the best fit for your business.
- Prepare Your Application: To apply for floor plan financing, gather the necessary documentation including financial statements, business plans, and credit history. Be prepared to demonstrate your dealership’s sales volume, market potential, and financial stability.
- Negotiate Terms: Once you have selected a floor plan lender, be sure to negotiate the terms of your floor plan financing. Aim for the best floor plan interest rates, flexible repayment terms, and minimal fees. Don’t hesitate to ask for discounts or incentives that can benefit your dealership.
Final Word,
Floor plan financing is one of the best modes of capital for new and used car dealerships in Australia. Floor plan financing will help your dealership source vehicles to sell instantly without the burden of having to pay interest like regular business loans. Utilising floor plan financing can be a powerful tool that enables success in the highly competitive Australia automotive industry.
DISCLAIMER – The content within this blog does not constitute professional advice and is intended to be general in nature. Please consult with all relevant parties prior to making any decision.
We hope you enjoyed reading this article. To read more articles like this, please visit the EasyCars latest news page here.
About EasyCars,
EasyCars by Jeal is an Australian, web-based, dealer management system that automates the buying and selling of motor vehicles. Using the latest technologies, EasyCars removes frustrations experienced at the dealership and opens your doors for greater growth.
EasyCars features include Simple Stock Management, Automated Advertising, Integrated Accounting, Government Compliance, Business Reporting, Facebook Automotive Inventory Ads, Reviews Management, Dealership Websites and more.
To learn more about EasyCars Dealer Management System or to arrange a no-obligation free demo, contact us today on 1300 473 744 or submit the form below.