How Does Floor Plan Financing Work?

The terms “floor planning” and “floor plan financing” get thrown around pretty frequently in dealership and auction circles. But what do these terms really mean and how does floor plan financing work?

To put it in the simplest terms, floor planning and floor plan financing work almost like a credit card made solely for purchasing vehicle inventory.

Credit cards are issued by a bank to an individual. Individuals can then buy personal goods with the money loaned from the bank. The money borrowed from the bank collects interest, and one has the choice to either make a minimum payment or pay off the balance in full when the bill is due.

So how does floor plan financing work?
Much like a credit card, a floor plan financing company extends a line of credit to a car dealer. Dealers can then use their floor plan line of credit to purchase inventory from auctions and other inventory sources. If a dealer purchases a car on a floor plan, takes it back to their lot and it doesn’t sell within a contractually determined number of days, dealers are charged a small fee. As a dealer sells their inventory, they pay back the original loan.

With a floor plan, the initial investment needed to buy a particular unit is a fraction of the vehicle’s actual purchase price. As soon as that vehicle sells to a consumer, floor planning dealers have the ability to immediately realize profits, pay back the initial value of the loan plus interest and fees, and had the flexibility to keep their funds working for their dealership.

How does floor plan financing work specifically to benefit auto dealers?
Floor plan finance companies are uniquely attuned to the needs of auto dealers. Using cash or a bank line of credit to purchase inventory can work for some car dealers, but many floor plan financing companies offer a variety of dealer-specific benefits. In addition to freeing up the cash a dealer has on hand, other floor plan financing benefits can include extra flexibility in terms of paying off a particular piece of inventory, payment extensions and credit increases if necessary. Other services are also frequently offered which can include records management, title services depending on the dealer’s state, collateral protection and state-of-the-art online and mobile account management tools.

Though floor plan financing can seem like a confusing concept, in practice it can be an extremely beneficial business strategy for automotive dealers.

Want to learn more about floor plan financing? Contact us and we’ll walk you through how you can do MORE as a NextGear Capital dealer.

NextGear Capital Enters Agreement with CarMax Auctions

man on car lot pointing out cars that used floor plan financing for used car dealersNextGear Capital has announced a new agreement with CarMax. The agreement with CarMax, the nation’s largest retailer of used vehicles, will allow dealers to use their NextGear Capital lines of credit at all 68 CarMax auction locations.

NextGear Capital floor plans are currently accepted at over 1,000 live and online auctions, and may be used with inventory sources such as trade-ins, off street purchases and loan payoffs. It is anticipated that NextGear Capital floor plans will be accepted at all CarMax auction locations as of August 8, 2016.

“We recognize CarMax as a company with high integrity and a reputation built on strong values and exceptional customer service. NextGear Capital shares these values and service-centric approach to business and is pleased to join efforts with CarMax in providing additional value to our dealers. We are committed to providing our dealers the tools necessary to be successful. The ability for dealers to utilize their NextGear Capital lines of credit at CarMax will enable greater access in sourcing inventory,” said Randy Dohse, senior vice president of sales and operations at NextGear Capital.

NextGear Capital Expanding in Carmel

Next Gear Capital in Carmel Indiana.CARMEL, Ind. (Aug. 19, 2015) – NextGear Capital, an automotive financial services provider for auto dealers, announced plans today to add up to 200 new jobs by 2018.

The company plans to make substantial investments exceeding $50.88 million to lease and renovate its corporate offices in Carmel to support its growing customer service and technology divisions. Additionally, NextGear Capital plans to upgrade its technology infrastructure and software to better serve its more than 20,000 customers.

“Indiana stands out as a regional leader for job growth, and companies like NextGear Capital repeatedly choose Indiana as a home for their expansions because of our pro-growth policies and low-regulation business environment,” said Governor Pence. “One of our greatest strengths is in our workforce, and after meeting with the hardworking Hoosiers who make NextGear Capital’s success possible back in March of 2013, I’m excited to announce today this additional expansion here in the Hoosier State.”

Today’s announcement marks the company’s second expansion in recent years. In 2013, Pence joined NextGear Capital to announce the company’s headquarters expansion in Carmel, creating up to 169 new Hoosier jobs. The company has since exceeded those plans, now employing more than 430 Indiana- based associates. NextGear Capital is currently hiring customer service and technology associates. Interested applicants may apply at http://jobs.manheim.com/careers/nextgear-capital-jobs.

“NextGear Capital’s success can be attributed to our talented workforce, both here and across the country, who work diligently every day to ensure our customers’ needs are met and embody the work ethic and family values that Indiana is known for,” said Brian Geitner, president of NextGear Capital.

NextGear Capital serves more than 20,000 automotive dealers with inventory financing services across the United States, Canada and the United Kingdom. The company is a part of Cox Automotive, which includes industry-leading brands Autotrader, Kelley Blue Book and Manheim. Originating more than $13 billion in dealer inventory financing last year, NextGear Capital has become the global leader in inventory finance for independent auto dealers. Recently, the company’s chief technology officer Bryan Everly was named CTO of the Year for Private Companies with over $100 Million Revenue by the Indianapolis Business Journal and TechPoint.

The Indiana Economic Development Corporation offered NextGear Capital Inc. up to $1,600,000 in conditional tax credits and up to $85,000 in training grants based on the company’s job creation plans. These incentives are performance-based, meaning until Hoosiers are hired, the company is not eligible to claim incentives. The city of Carmel supports the project.

“We were thrilled last year when NextGear Capital moved into its new corporate headquarters in Carmel, which we took as a reflection of the strong high-tech business community we enjoy,” said Carmel Mayor Jim Brainard. “NextGear Capital has been one of Indiana’s true technology success stories and today’s news of another expansion in its workforce is great news for Carmel and all of central Indiana.”

Growing companies like NextGear Capital continue to select Hamilton County for their job creation plans. Earlier this summer, nonprofit computer coding school Eleven Fifty Academy and corporate coding firm Eleven Fifty Consulting announced plans to grow their operations, committing to create a combined 92 new jobs in the coming years.

Floor Planning 101


The automotive industry is very unique in that it is one of the few industries where commercial loans are abundant and relatively easy to qualify for. Whether you are just starting out or looking to grow your business, it is likely you will be able to find the capital needed to stock your dealership. Yet while there is a good chance you will be able to acquire a floor plan line of credit, the size of that line of credit will vary depending on your business needs and overall portfolio snapshot.

Floor Plan 101: The Basics
First and foremost, to qualify for a floor plan, you need to have credit. Specifically, you should have a history of utilizing and repaying debt. Bad credit and hiccups on credit history aren’t always deal-breakers, but they will likely reduce the amount for which you qualify. Additionally, there is a good chance that credit issues will have a negative impact on pricing structure. The good news is that over time, with good performance and the adherence to the terms and conditions, it is possible to eventually overcome these setbacks.

It is also important that you are not over-extended. If your credit cards are all maxed out, that is a potential red flag even if you have not paid late. Handling your available credit responsibly is essential, so be sure to maintain a substantial amount of available credit.

How to Use Your Floor Plan
It is relatively easy to use your floor plan line of credit. Not only do NAAA-affiliated auctions accept most floor plan companies, but the lender handles much of the back-door operations, leaving you to just worry about one thing: purchasing inventory.

On auction day, after checking in at the auction, you will want to go to the appropriate department at the auction to check your credit availability with your floor plan lender(s). Once you are done bidding for the day, take your blocked tickets to the auction check-out, where you will notify the auction which purchased units you wish to floor plan. From there, your floor plan company will take care of the rest.

Growing Your Business
If you are looking to grow your business through the addition of a floor plan line of credit, there are several other items that will play into the lending decision above and beyond your personal credit history. Trade references, business credit, equity, cash and the overall health of your business all come into the picture and become increasingly more important in your effort to acquire more floor planning dollars.

The same principals apply if you are looking to increase your existing floor plan credit limit. However, there is another component that could either be in your favor or held against you: performance. You can rest assured that commercial lenders have learned a lot about managing and mitigating risk, especially over the last several years. It is crucial that you closely adhere to your lender’s terms and conditions. NSF’s, late curtailments, slow payoffs and bad audits will inevitably prevent you from gaining the additional buying power you need to grow your business. Stay on top of managing your accounts and you will improve your chances of increasing credit limits.

“Trade references, business credit, equity, cash and the overall health of your business all come into the picture and become increasingly more important in your effort to acquire more floor planning dollars.”

Pitfalls to Avoid
Floor plan companies are discretionary lenders, and it should be understood that your account is constantly being underwritten. Changes in your performance or credit profile will not go unnoticed. Commercial lenders have learned a lot about managing and mitigating risk, especially over the course of the last five years. It is crucial that you closely adhere to your lender’s terms and conditions. NSF’s, late curtailments, slow payoffs, and bad audits will inevitably prevent you from gaining the additional buying power you need to grow your business. Stay on top of managing your account, be honest and communicative, and you shouldn’t have any problems.

In Conclusion
All of this ties into the overall viability of your operation. A thriving business should be building equity while reducing debt. As a thriving dealer principal you should be building net worth, not acquiring debt to keep your business above water. If your business isn’t building and growing, then you probably shouldn’t be seeking more floor plan dollars. More flooring won’t turn around a failing business model. You would just be adding more fuel to the fire. Instead, focus on perfecting your operation. However, if your business is building equity and turning a profit, having some additional buying power can surely help you shift into the next gear

Tiered Pricing