Floorplan Finance

Name: Floorplan Finance
Creator: Savvy
Published: 2022-02-17T11:45:01+10:30

Home > Business Loans > Floorplan Finance

It won't affect your credit score.

Written by , updated on July 26th, 2023

What is floorplan financing and how does it work?

Floorplan finance in Australia is simply another name for inventory finance. This is different to how standard unsecured business loans work in that the process of satisfying all parties is different. When considering how floorplan financing works, the process is as follows:

Your business applies to a lender to gain access to funds and, if approved, the lender will forward these directly to your supplier.
Once your supplier receives the funds it needs to cover your business’ order, it can organise a shipment of goods to be delivered to you.
After your business receives its supplies, it can sell them and use part of the revenue generated from sales to repay the lender.

The line of credit is revolving, meaning it can stay open as long as it’s viable and prevents your business from needing to reapply for a short-term loan each time it purchases new stock from its supplier. Additionally, like unsecured business loans, this type of finance comes without any requirement for asset collateral, meaning it’s accessible for smaller or newer businesses who may not have the assets required to secure a loan.

The amount your business is able to borrow will be dependent on several factors, including the amount of revenue it generates each month or year and its consistency, its credit score and history, time in business, repayment periods and more. Because it’s a line of credit, you can access up to the maximum available amount whenever you need and pay it down at a pre-determined pace, as agreed upon by you and your lender.

What are the benefits of floorplan finance for my business?

There are a number of key benefits of floorplan finance in Australia. Some of these include:

Helping build a positive relationship with your supplier

With the help of financing provided by floorplan finance, your business can be aided in the building of positive relationships with suppliers which may not otherwise be possible without financial assistance. Consistently paying debts on time and in full will be recorded as positive credit behaviour by some suppliers, which can help boost your business’ credit score.

Maintaining your business’ cashflow

By having your business’ relevant expenses paid for upfront by your lender, you'll have more general revenue freed up to distribute across the rest of your business. If your business were to pay for these orders without financing assistance, you may find covering the cost of the importing and shipping of goods makes a significant dent in its available cash.

Short-term solutions to avoid dragging out debt

Sometimes, longer-term debts aren’t exactly what your business needs, especially if they result in a greater interest charge overall. By shortening this term to within your sales period, your business can stay on top of its debt and ensure that it’s off the books sooner rather than later. This can also improve its credit score over time.

Types of business loan

Unsecured business loans

The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.

Secured business loans

If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.

Small business loans

Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.

Low doc business loans

Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.

Lines of credit

A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.

Invoice finance

Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.

Equipment loans

A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.

Supply chain finance

With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.

Inventory finance

Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.

Overdraft facility

An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.

Cash flow loans

You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.

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Why your business may need floorplan finance in Australia

To cover short debtor periods

To avoid dipping into your business’ working capital

To take advantage of an exceptional stock deal

To cover the cost of a new line of goods

To reduce the financial strain on seasonal businesses

To cover short debtor periods

To avoid dipping into your business’ working capital

To take advantage of an exceptional stock deal

To cover the cost of a new line of goods

To reduce the financial strain on seasonal businesses

Further questions regarding floorplan finance

Are there any other floorplan finance options available to my business?

Yes – you may find that the best option for your business is simply a standard unsecured business loan. These also come without security requirements and enable you to borrow between $5,000 and $500,000 over terms of three months to five years and generally charge a lower interest rate.

You can use the funds however you like across your business, not just for the purchase of stock. However, it may be more difficult to manage a lump sum, rather than drawing the funds when they’re needed. An unsecured business line of credit serves the same purpose, making it another viable option.

Is there any way to use the approved funds for other business purposes?

Not really – because you don’t actually see the funds yourself, given that your lender advances them directly to your supplier, there’s no real scope for your business to gain access to the funds for purposes beyond the purchase of stock.

What are the main floorplan financing requirements?

There are a number of important business loan requirements which your business is likely to be required to meet before getting approved, which primarily include:

At least six months of trading under your belt
A minimum monthly revenue of at least $5,000
A strong credit history without defaults or bankruptcy

How is interest charged on my floorplan finance deal?

Because floorplan finance is a line of credit, interest is charged only on the balance you’ve used, not the whole loan. For example, if your business was approved for a credit line worth $200,000 and spent $50,000 on a stock order, you would only be charged interest based on $50,000 rather than the full amount. The sooner you repay your debt, the less interest you’ll be charged overall.

Can my business purchase any type of inventory?

Yes – because you’re taking out an unsecured finance deal, you’ll be able to purchase just about any inventory you wish, within reason. However, you may find in some cases that your lender reviews the stock purchased, as they want to guarantee that your business will be able to sell it and thus keep your business in a position to comfortably service the debt in good time.

Will I need to provide a guarantee as part of the arrangement?

You may have to – some lenders will require you, the operator of the business, to provide a personal guarantee on the finance deal to ensure that, should your business’ ability to pay the loan fall through, it can still be repaid by you. This can alternatively come in the form of another company director. Essentially, a personal guarantee serves the same purpose a guarantor would on a home loan.