Car Dealer Financing: Floor Plan Lines, Curtailments, Licensing and Buying a Dealership

The financing a dealership actually uses

Dealers typically carry several facilities at once. The floor plan line pays the auction, manufacturer or wholesaler for each vehicle and is repaid unit by unit as cars sell. A working capital line or term loan covers reconditioning, payroll, advertising and the lag between a sale and the funding of the customer’s retail contract. Equipment financing pays for lifts, diagnostic tools and service-bay gear. Real estate loans, including SBA 7(a), buy the lot and building. And an acquisition loan buys an existing dealership.

The general mechanics of borrowing against stock, including how lenders set advance rates and size a line from monthly unit sales, are covered on the inventory financing page. This page focuses on what is specific to car dealers: the cost of the floor plan, the rules that come with it and the other loans a store needs.

How floor plan interest and fees add up

The OCC handbook says floor plan loans are usually priced at a margin above an index rate, with used inventory normally priced higher than new because it carries more risk. Interest is usually payable monthly on the average daily balance, so the cost of a car is driven by how many days it sits. Manufacturers sometimes pay a franchised dealer’s floor plan interest during promotional periods, which lowers the cost of new units.

Independent used-car lines also carry per-unit and periodic fees that differ by lender: flooring or advance fees, audit fees and extension fees when a unit is renewed. Ask for a fee schedule and add it to the interest when you compare lines. A line that looks cheaper on rate can cost more on a lot that turns slowly.

The best lever on floor plan cost is turn. A unit sold in 30 days costs a little more than half as much interest as one sold in 54, and a quarter as much as one held 120 days. Days-to-turn by price band is the number to manage, and the one underwriters ask about first.

Curtailments, maturities and aging units

Floor plan advances are typically repaid as each unit sells, but the agreement normally includes a curtailment provision that requires the dealer to pay down principal on units that have not sold within a set time. The OCC describes curtailments as the timing and percentage reduction in principal for each unsold unit. Its examples: a new-car advance with a 10 percent monthly curtailment starting in the tenth month has a maximum maturity of 19 months, while a used-car advance with the same curtailment starting in the fourth month maxes out at 13 months.

Some lenders skip maturity dates and instead raise the interest rate in steps as a unit ages. Others use demand lines that the lender can end at any time. Read which structure your agreement uses, because a curtailment comes due in cash. A lot full of 90-day units can create a wave of principal payments in the same month that sales slow down.

Selling out of trust and floor checks

The handbook defines selling out of trust as selling inventory without promptly sending the proceeds to the lender to retire the advance. It is the fastest way to lose a floor plan line, and the OCC notes it usually happens when a dealer is short of cash. Lenders sometimes allow a short delay after the sale; the OCC gives the example of a three-day leeway for large-volume dealers to handle paperwork.

To catch it, lenders run floor checks. The OCC expects them at least quarterly and more often, such as monthly, for pay-as-sold lines. Inspectors match serial numbers against the lender’s list, check mileage on used units and demonstrators, and ask the dealer to produce any car that is off the lot, often within about two days. Keep a sold-unit log that ties each sale to its payoff, and treat the floor plan payoff as the first bill paid from every deal.

Dealer license, surety bond and place of business

Floor plan lenders and dealer auctions generally expect a dealer license, so it is the first thing in the file. California is a representative example. Its DMV requires used and wholesale-only dealer applicants to complete a dealer education program and pass a DMV test, all owners to submit fingerprints, and the business to have an established place of business in a permanent structure with a display area for its exclusive use. The application fee is $175.

California Vehicle Code section 11710 also requires a dealer surety bond of $50,000. The bond protects buyers, sellers, financing agencies and government agencies against loss from the dealer’s fraud or failure to meet the code’s conditions. Lenders will ask for the bond, the license and the seller’s permit or tax registration. Other states set their own bond amounts and lot rules, so check your state motor vehicle agency.

Buying a dealership

Changes of ownership, complete or partial, are an eligible SBA 7(a) use, and 7(a) loans reach $5 million. SBA generally limits 7(a) maturities to ten years unless the loan finances real estate or long-life equipment, where up to 25 years is allowed. Since March 1, 2026, every direct and indirect owner and required guarantor must be a U.S. citizen or U.S. national to use 7(a) or 504.

A dealership purchase usually needs three approvals that move together: the acquisition loan for goodwill, equipment and real estate; a new floor plan line for the inventory; and the new owner’s dealer license and bond. Franchised stores also operate under a dealer-manufacturer agreement, so check what the manufacturer requires when a store is sold. Start the license and floor plan conversations early, because the purchase cannot close if the inventory has no lender on day one.

Worked example: floor plan interest on a used-car lot

Hypothetical, not an offer. An independent dealer floors a sedan bought at auction for $18,725 on a line priced at an assumed 9.25 percent. If it sells in 54 days, the interest is $18,725 × 0.0925 × 54 ÷ 365, about $256.25, before any per-unit fees. If it sits 120 days, interest climbs to about $569.45, and under a hypothetical agreement with a 10 percent curtailment at day 91, the dealer also owes $1,872.50 of principal that month.

Across the lot, an average daily floor plan balance of $587,300 for a 30-day month at the same rate costs about $4,465.09 in interest. The dealer also borrows $96,400 of working capital at an assumed 13.5 percent over 36 months to recondition units faster and fund advertising: about $3,271.36 a month and $21,369.02 of total interest. Cutting average days on the lot is what makes both payments easier.

What floor plan and dealer lenders look at

The OCC notes that dealers are usually highly leveraged and that their cash flow tends to swing with seasonal sales, which is why lenders watch liquidity closely. Expect requests for monthly dealer financial statements, bank statements, tax returns, an inventory aging report, the license and bond, and a history of floor plan payoffs. Covenants may include a minimum tangible net worth and limits on other debt.

Newer independent dealers often start with a small line, a cash reserve and a lender that audits monthly. A clean record of fast payoffs and no out-of-trust findings is what earns a larger line and better pricing.