As an owner, you know that operating your own car dealership can be quite lucrative. But you also know that cash flow challenges are common.
There are times when extra capital is critical, whether it’s for cash flow or simply to grow and expand.
But because car sales have large transactions (and some of that inventory may not sell), among several other factors, lending institutions consider them risky, making acquiring car dealership loans from traditional institutions such as banks difficult.
Because of this, most independent car dealerships are seasonal. And pumping cash into this type of cyclical business can prove to be very difficult.
The challenge with obtaining additional financing for car dealerships
Car dealerships are considered high risk by almost all lenders due to:
- Thin profit margins
- Large ticket items
- Seasonality
- High sales volatility, and
- Rapid depreciation of inventory value
However, there is an additional reason that makes obtaining car dealership loans from a traditional bank sometimes impossible (even if your books appear to be in order): floor plans.
Starting during the great recession, car dealerships were closing by the thousands each year. Quickly, a problem referred to as “sales out of trust” or simply “SOT” arose. SOT threatened to keep lenders from being able to collect on the debts that were owed to them.
‘Sales of out trust’ refers to when a dealership sells a vehicle financed through a floor plan arrangement, such as with NextGear or Westlake, but doesn’t repay the inventory advance amount outlined in the floor plan arrangement.
The greater problem the grew, the stricter banks became towards approving dealers for car dealership loans.
How do floor plans work?
In a floor plan agreement, a lender provides a revolving credit balance to a dealer.
That credit is used by the dealer to purchase inventory from the car manufacturer. Each piece of inventory is financed through the floor plan agreement and used as collateral.
When a dealer sells one of those cars, they’re required to repay the advance with interest, paying off the inventory that was sold and keeping their profit. Each time a vehicle is sold, the advance is paid for that vehicle.
The 5 best floor plan funding companies for car dealerships
Floor plans are an incredibly useful way for dealers to obtain funding for their inventory, especially if they’re seasonal.
But obtaining a floor plan agreement is a big step towards growing your dealership, so you want to know that you’re doing business with a reputable company that knows what they’re doing.
There are many great floor plan funding companies out there that will provide you the capital you need to grow your dealership, but only a few that we’d call ‘the best’.
Here are 5 floor plan funding companies for car dealerships:
1. NextGear Capital
With over 23,000 dealers and 10 years under its belt, NextGear is easily one of the most well-known names in the dealership floor plan industry.
NextGear is unique in that it offers both retail and wholesale financing options. In addition, their floor plans allow dealers to finance retail, wholesale, salvaged, and rental units.
NextGear also offers finance for trade-ins, off-street, and dealer-to-dealer purchases.
2. Westlake Financial
Westlake Financial is another big name in the floor plan industry. They offer no title management, credit lines starting at $25,000, and rates as low as 4.5%.
Westlake will also pay off your existing flooring line in the case of switching to their financing plan.
In addition, Westlake Financial offers comprehensive inventory protection plans to protect against everything from fire and flood damage to theft.
3. Ally Auto Finance
Ally Auto Finance, a branch of major online bank and lender Ally, has one of the largest backings in the floor plan industry.
Ally Auto Finance offers comprehensive inventory insurance similar to Westlake as well as a Dealer Rewards program that gives eligible dealers cash incentives based on meeting certain guidelines.
4. AFC
Automotive Finance Corporation prides itself on working with local experts to provide top-level service to their deals.
AFC has a clean and easy to use mobile site that allows you to track your purchases, balances, make new credit requests, and payments. They also have a Daily Tab program that allows dealers to pay a flat daily fee for the inventory borrowed.
5. CarBucks
CarBucks has great terms if you’re looking for a fair, long-term floor plan agreement.
They offer no curtailments for maximum cash flow (up to 180 days), no audit fees, and flexible terms.
They also boast a knowledgable and dedicated customer service team and no automated phone system.
Alternative options for car dealership loans
Maybe you’re waiting on approval for a floor plan agreement. Maybe something is barring you from being approved.
And maybe you already have a floor plan agreement and you need additional capital for other business expenses. But banks won’t approve you because of the floor plan agreement you have in place.
Fortunately, there are many alternative options for car dealership loans you can use to acquire the capital you need for your dealership.
Obtaining working capital with Excel Capital
Excel Capital offers car dealerships which have been operating for a minimum of three months a chance to grow their business through working capital and other business loans.
There are no restrictions on what you can or cannot do once the loan is credited into your account and you can use it as you please to grow your dealership.
Here are some of the benefits of acquiring a working capital loan from Excel Capital:
- No personal collateral required
- Minimum paperwork required
- Does not collateralize your inventory like floor plan financing
- Poor credit considered
- Repayment terms are flexible
- Fast processing
- No personal guarantee
- No application fee, no upfront fee
- Building business credit
- Funding in as little as 2 business days
We understand the work you put into running your dealership and your need for adequate funding (whether rainy or sunny days).
That’s why we’ve designed flexible and convenient working capital loan and business credit line options:
Unsecured business loans
An unsecured business loan is much like a traditional bank loan. However, it doesn’t require collateral such as cash savings or property. In exchange, interest tends to be higher.
There are several benefits of an unsecured business loan, namely:
- No collateral required
- Can be approved on bad credit
- And can be funded in as little as 24 hours
Traditional bank loans require 660+ credit, and often 720+, making them very difficult to be approved for even if you don’t currently have a floor plan agreement.
However, unsecured business loans have a low credit requirement, making them a great alternative.
Learn more about an unsecured business loan.
Business lines of credit
A floor plan agreement is essentially a ‘line of credit’: Provided you pay back the advance amount, you can continue to tap into that credit pool.
A business line of credit works the same way: You’re approved for a set amount and can use that credit whenever you’d like, provided you pay down the balance.
Plus, you can use it for, whatever your business might need.
In addition to this, we can qualify for a business line of credit in a matter of minutes and with minimal paperwork.
Also, like an unsecured business loan, a business line of credit has a low credit requirement. In the case of our line of credit, a 540 score or higher.
Learn more about a business line of credit.
Don’t let a lack of capital hold you back
Whether you have a floor plan agreement or not, not being able to get approved for a bank loan shouldn’t hold your business back from growth.
Operating a dealership can be lucrative, but it can be difficult to acquire funding. It doesn’t have to be, though.
With the slew of alternative lending options available to you, and many with low to no credit requirement, it’s now easier than ever to acquire the capital you need to not just keep business going– but grow.