Inventory loans, also known as floorplan loans and inventory financing, are commonly used not just by car dealerships but also manufacturers, wholesalers, and resellers in a variety of industries. An inventory loan makes it possible for a company to purchase expensive products using the products being purchased as the collateral for the loan. As the items are sold, the borrower uses the cash to repay the lender and/or purchase additional items to sell.
How to Obtain a Car Dealership Inventory Loan
Inventory loans are commonly offered by a wide range of financial institutions. Even so, car dealerships that are looking for the best possible deal should search out a company that specializes in providing inventory loans to car dealerships as car sellers often have different needs and requirements than other industries. It is also wise for a dealership to talk to a number of lenders to see which one offers the best terms and conditions. One should pay attention not just to a loan’s interest rate but also other important terms and conditions such as the deadline for repaying the loan, the amount of money that one can borrow at any given time and the terms and conditions for obtaining the loan. In some instances, the lender may want to schedule periodic inventory inspections to ensure that it has retained its value.
There are a number of requirements that a car dealership must meet in order to obtain an inventory loan. A good credit score is a must as the lender will want to ensure that there is a high chance of the loan being repaid on time and in full. A lender will also likely ask for sales records to determine just how quickly the inventory will be sold. A company that has a large inventory that is not selling quickly will find it difficult to obtain an inventory loan to purchase even more items to sell. On the other hand, a company that consistently does good business should not have trouble securing an inventory loan.
Other loan requirements include plans detailing how the loan will be used and how it will be paid back. A lender will specifically want to know the dealership’s inventory valuation method, as this method varies from company to company. While some use the LIFO method, others use FIFO or average cost to determine the worth of the goods they have yet to sell.
Upon analyzing a car dealership’s business plan, track record, credit score and other important factors, a lender will usually grant a maximum loan for a certain amount. This amount can in some cases be raised in the future if the borrower shows that he or she can repay the loan without undue delay. At the same time, a borrower should not feel obligated to use the full loan amount just because it has been approved by the lender. Overextending and purchasing too much inventory could result in not having enough funds on hand to pay for other important bills. It could also cause one’s interest rate for the loan to rise if the inventory isn’t sold off fast enough to take advantage of low interest rates provided for short-term loans.
Making the Most of an Inventory Loan
It is important for a car dealer to bear in mind that the faster the inventory sells, the faster the loan can be repaid and the lower the interest rate will be on the loan. At the same time, selling cars as quickly as possible is not always the best option, especially if it is a buyer’s market and numerous options are forcing a dealer to lower prices to keep up with the competition. It is important for a number of factors to be taken into account to ensure that the inventory moves quickly and yet is able to sell at a profitable price.
A wise dealer will also ensure that all bills are properly managed to ensure that inventory loans are repaid in a timely manner. This can be hard to do even if the business is successful, as there is always the temptation to invest in more inventory in order to generate more sales and higher profits. At the same time, one must bear in mind that it is not uncommon for many large bills to come due at the same time and not having cash on hand for these can result in raised interest rates, a lowered credit score or even worse.
Working with a financial institution as the inventory is being sold will help to prevent problems and can even enable a dealership to avoid late fees. Financial companies that specialize in providing inventory loans to vehicle companies know that there are many factors that affect a company’s success. A company that is unable to make a payment on time and/or is not selling off inventory as quickly as hoped should get in touch with the lender and provide detailed information regarding the situation. Doing so can enable the financial dealer to provide assistance and helps a dealership maintain a good relationship with the lender.
Given the fact that it could take well over $100,000 just to start a successful car dealership company, it is not surprising that many entrepreneurs and companies that enter this field need to obtain car dealership inventory loans on an ongoing basis. Thankfully, there are literally hundreds of cash advance businesses, banks and other lenders who specialize in providing these loans to the automotive industry. Obtaining a loan is not overly difficult for the business that does its research, chooses a lender with care and provides the lender with the required paperwork to process the loan in a quick, efficient manner. Even so, how the loan is managed will have a large bearing on a company’s future ability to take out low-interest loans. By ensuring the loan is paid off in a timely manner, a dealership is setting itself up for future success by building on its ability to obtain large sums of money at a low interest rate as and when necessary.