Commodities, Inventory & Collectibles

How to Underwrite Floorplan and Working Inventory

Underwrite floorplan inventory by advancing against specific units at invoice or wholesale value, then controlling the risk that units are sold without repaying the lender. The metrics that matter most are physical audit results and sold-out-of-trust incidents, inventory aging and curtailment compliance, turnover by unit type and dealer liquidity.

What makes floorplan inventory underwriting different

Floorplan financing funds dealer inventory such as new and used vehicles, powersports, RVs, boats, agricultural and construction equipment or manufactured homes. Each unit is financed individually, usually at invoice cost for new units and a wholesale value for used, and that advance is repaid when the unit sells. Value comes from saleable inventory with clean title and a dealer that turns stock quickly. Risk comes from aging units that lose value, dealers selling units without paying off the lender (selling out of trust), shifts in manufacturer incentives, seasonal demand and dealer liquidity strain. Units are mobile, so physical audits matter more than reports.

Lenders, including manufacturer captive finance companies, banks and specialty lenders, rely on frequent unannounced audits, title or statement of origin control, curtailment schedules that force partial paydowns as units age, and manufacturer repurchase agreements on new units. They underwrite the dealer's financial strength, payoff timing and audit history more than any single unit. Dealership owners underwrite gross profit per unit, finance and insurance income, service and parts revenue and manufacturer relationships. Owners may hold aged units hoping for a buyer, while lenders use curtailments and interest step-ups to push that inventory out or reduce exposure.

Key metrics

Audit results and sold-out-of-trust incidents

Physical audits catch units sold without payoff, which is the largest source of floorplan losses.

Inventory aging

Units in stock longer lose value, accrue interest and become harder to sell at cost.

Curtailment compliance

Scheduled paydowns as units age reduce lender exposure to depreciating collateral.

Floorplan lenders commonly require curtailment payments once units have been in stock beyond a set number of days, with larger paydowns as aging continues.

Inventory turnover by unit type

Faster turns reduce carrying cost and value risk; slow categories deserve lower limits.

Advance rate

New units are often financed at invoice, while used units are advanced against wholesale guide values with a haircut.

Dealer liquidity and net worth

Dealers need cash to pay curtailments, absorb losses on aged units and cover out-of-trust balances.

How to underwrite it, step by step

Review dealer financial statements, sales history by unit type and manufacturer relationships.
Set the credit line and advance rates separately for new, used and demo inventory.
Take control of titles or manufacturer statements of origin for financed units.
Establish curtailment schedules, interest terms and payoff deadlines after sale.
Conduct regular unannounced physical audits that match serial numbers to the floorplan ledger.
Monitor aging, sales reports and payoff timing to spot delayed payoffs early.
Escalate immediately on out-of-trust findings with demand for payment and tighter controls.

Due diligence checklist

Floorplan or wholesale financing agreement
Dealer financial statements and tax returns
Manufacturer dealer agreements
Manufacturer repurchase agreements
Titles and manufacturer statements of origin
Physical audit reports
Inventory aging reports
Sales and payoff records
Insurance certificates covering inventory
Personal and corporate guarantees

Key risks and mitigants

Selling out of trust

Run frequent unannounced audits, require payoff within a short window after sale and monitor deposits against sales.

Aging inventory and value decline

Enforce curtailments, step up pricing on aged units and lower advance rates on used inventory.

Dealer insolvency

Underwrite dealer liquidity and net worth and obtain owner guarantees.

Manufacturer support withdrawal or termination

Review repurchase agreement terms and the manufacturer's health and dealer standing.

Double financing or title fraud

Control titles, search for competing liens and reconcile units across lenders.

Typical financing and deal structure

Floorplan lines are provided by manufacturer captive finance companies, banks and specialty floorplan lenders as revolving facilities where each unit is a separate advance repaid on sale. Captives often offer interest-free periods on new units funded by the manufacturer, after which interest accrues and curtailments begin. Manufacturer repurchase agreements may require the manufacturer to buy back new, unsold units if the dealer fails, which supports advance rates. Lenders typically require owner guarantees, a blanket lien on dealer assets, title control, insurance and audit rights. Covenants commonly include minimum working capital, tangible net worth and limits on aged and used inventory. Dealers often pair floorplan with separate real estate and working capital loans.

Red flags

Repeated audit discrepancies or units missing from the lot.
Payoffs consistently delayed after units are reported sold.
A growing share of inventory past curtailment dates.
Dealer liquidity too thin to pay curtailments.
Manufacturer issuing a notice of default or terminating the dealer agreement.

Frequently asked questions

What is floorplan financing?

Floorplan financing is a revolving line that funds a dealer's inventory, with each unit financed individually and repaid when it sells. It is common for vehicle, RV, marine, powersports and equipment dealers. The lender holds title or a security interest in each unit and audits the lot to confirm financed units are still there.

What does selling out of trust mean?

Selling out of trust means a dealer sold a financed unit but did not repay the lender within the required time. It is the main floorplan risk because the lender loses its collateral and becomes an unsecured creditor for that unit. Frequent audits and short payoff deadlines are designed to detect and prevent it.

What are floorplan curtailments?

Curtailments are required partial paydowns on units that remain unsold after a set number of days. They reduce the lender's exposure as units age and depreciate, and they push dealers to sell older stock rather than carry it. Curtailment schedules usually step up over time, with the full balance due at a final aging limit.

How often do floorplan lenders audit dealers?

Audit frequency depends on dealer risk and lender policy, but regular physical audits, often unannounced, are standard. Dealers with prior discrepancies, weak financials or fast-growing lines may be audited more often. Auditors match serial numbers on the lot to the floorplan ledger and follow up on any missing or sold units.

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Educational content, not investment, credit, legal or tax advice. Benchmarks are common practitioner rules of thumb and vary by lender, market and cycle.