For many independent dealerships, floor plan financing is arguably the best way to handle inventory.  However, there seem to be some common misconceptions among dealers about exactly how floor plan financing works.  According to ASF, a financial services company out of California, there are, in fact, four common floor plan finance myths: uncommonness, equivalence, difficulty, and limitations.  Following is an explanation and correction of those misconceptions.

Using floor plan financing is uncommon.  This is simply not true.  A large number of dealers, especially independent dealerships, utilize floor plan financing to keep their inventory well stocked.  In fact, unless an auto dealership has millions in spendable capital, this is the most common way to handle inventory needs—especially where new car sales are concerned.

One floor plan finance lender is much like another.  Again, this concept is incorrect, according to an article in News Wire.  Different floor plan lenders may offer different interest rates and back-end account options, as well as varying levels of customer service.  Just as a wise car buyer would consider all financing options before choosing a lender, independent dealerships interested in floor plan financing should engage in detailed due diligence before deciding which floorplan lender works best for them.

Audit preparation is a nightmare.  This is also a misconception.  While preparing for an audit naturally requires some work, as long as sales records, inventory lists, and other necessary information are kept organized and updated, it is nothing arduous.  That is not to say it cannot be difficult; procrastination and disorganization can certainly turn what would otherwise be a simple effort into an ordeal.

Floor plan financing limits potential inventory.  According to the same News Wire article, this is also not true.  In fact, in many cases, an independent dealer with otherwise limited purchasing capability may find that floor plan financing increases the vehicles available for their inventory.  Choosing this route may enable an independent dealership to offer vehicles that they otherwise could not.

Of course, there are certainly other options for stocking inventory, and floor plan financing is not for everyone.  (See our article on another of these options, ACV Auctions.)  However, it may be a valuable asset to many independent dealers.  At the very least, with these four floor plan myths debunked, independent dealers will have the knowledge to consider this option, and make an informed decision.

(Source: News Wire)

(Study: ASF)

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