Legal Definitions - floor-plan financing

Definition: Floor-plan financing is a type of loan that is secured by merchandise and paid off as the goods are sold. This type of loan is usually given by a manufacturer to a retailer or other dealer, such as a car dealer.

Example: A car dealership needs to purchase a fleet of cars from a manufacturer. The manufacturer provides floor-plan financing to the dealership, which allows the dealership to borrow money to purchase the cars. As the dealership sells the cars, they pay back the loan to the manufacturer.

Explanation: The example illustrates how floor-plan financing works in the context of a car dealership. The loan is secured by the cars, which are the merchandise being sold. As the dealership sells the cars, they generate revenue to pay back the loan. This type of financing is beneficial for both the manufacturer and the dealer, as it allows the dealer to purchase inventory without tying up their own capital, and it provides the manufacturer with a reliable source of revenue.