Floor Financing Definition

In context of interest rates a level which an interest rate or currency is structured not to go below.

Floor financing definition.

The loans are often made with a one year term and based on an aggregate budget. Floor planning is a method of financing inventory purchases where a lender pays for assets that have been ordered by a distributor or retailer and is paid back from the proceeds from the sale of these items. Floor the area of a stock exchange where active trading occurs. Also the price at which a stop order is activated when the price drops low enough to activate such an order.

The arrangement is most commonly used when large assets such as automobiles or household appliances are involved. 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. An interest rate floor is an agreed upon rate in the lower range of rates associated with a floating rate loan product. A floor in finance may refer to several things including the lowest acceptable limit the lowest guaranteed limit or the physical space where trading occurs.

The dealer then receives payment hopefully including a profit and remits the balance to. What you don t realize is that like most new car dealers a floor plan was used to finance the cars. Interest rate floors are utilized in derivative. These loans are made against a specific piece of collateral i e.

What is floor plan financing. For example a dealer might be able to borrow 10 million over the year to purchase 300. An auto rv manufactured home etc. An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price an example of a cap would be an agreement to receive a payment for each month the libor rate exceeds 2 5.

How does floor plan financing work specifically to benefit auto dealers. They are most frequently taken out for periods of between 2 and 5 years although this can vary considerably. Floor plan lenders include local and regional banks large national banks and financing companies owned by the manufacturing companies like toyota financial or ford credit. Retailers use a short term loan to purchase inventory items and the loan is repaid as inventory is sold.

Floor plan financing is a revolving line of credit that allows the borrower to obtain financing for retail goods. Simply it is a way for an auto dealer to use a lender s funds to finance the cars and until each of them is sold the lender holds title to the cars. Floor plan finance companies are uniquely attuned to the needs of auto dealers.