Flooring Lines

“Credit That Parks on the Lot”

In commercial finance, “Flooring Lines” (often referred to as floor plan lines or flooring lines of credit) are specialized lines of credit used by businesses, particularly automobile dealerships and equipment dealers, to purchase high-cost inventory items that are intended for resale.

Key Features of Flooring Lines in Commercial Finance:

Inventory Financing:
The lender provides funds to the business to purchase inventory (e.g., vehicles, boats, machinery).

  • The inventory serves as collateral for the loan.


Revolving Line of Credit:

  • As inventory is sold, the dealer repays the lender.
  • The line can then be reused to purchase new inventory.


Interest & Curtailment:

  • Typically, the borrower pays interest and curtailment (partial principal repayment)
    while the item(s) remains unsold.
  • Once sold, the remaining principal is repaid.

          See:   CURTAILMENT  for add’l details

Lender Oversight:
Lenders often perform regular audits to verify the inventory.

  • Each item is tracked with details like VIN numbers or serial numbers.


Common Users:

  • Auto Dealers (new and used)
  • Agricultural Machinery Dealers
  • Industrial Equipment Dealers
  • Recreational Vehicle Dealers
  • Boat Dealers


Benefits:

  • Frees up working capital
  • Allows businesses to maintain a large inventory
  • Scales with business size and seasonal needs
cropped-03-Linkedin-01.jpg

Best Practices for Flooring Line Success

Know Your Lender & Line Terms Inside Out

  • Understand curtailment schedules, interest rates, audit rules, and payoff expectations.
  • Ask: Are there fees for unused credit? Is there a floor check frequency? Is the line revolving?

Match Inventory to Market Demand

  • Don’t overstock just because credit is available.
  • Use data to forecast fast-turning items and avoid long-sitting units that rack up curtailments.

Track Inventory Like a Hawk

  • Use a reliable inventory management system that integrates with accounting and finance tools.
  • Include details like acquisition date, curtailment due dates, VIN/serial numbers, and sale status.

Stay Ahead of Curtailments

  • Build curtailment payments into your monthly cash flow forecast.
  • Don’t wait for audits—pay early if possible to stay in control

Rotate Inventory Regularly

  • Turn inventory fast to avoid aged units.
  • Create incentives for sales staff to move older or curtailment-heavy units first.

Maintain Strong Lender Relations

  • Communicate proactively, especially if payments may be delayed.
  • Treat lender audits seriously—clean, organized floor checks show professionalism and reduce risk of line freezes.

Set Internal Policies

  • Limit who can draw on the line.
  • Establish controls for floor plan usage: only qualified units, manager approvals, etc.

Review Floor Plan Utilization Monthly

  • Check how much of the line is in use and how much is aging out.
  • Identify bottlenecks and slow movers early.

Effective use of a flooring line requires strong inventory management, timely payments,
and good lender communication to maintain financial health and operational flexibility.

Good Lender Communication

“No Ghosting. No Guessing.”

“Lenders Ain’t Mind Readers.”

Good lender communication is one of the most critical—and often underestimated—aspects of successfully managing a flooring line. It helps maintain trust, avoids surprises, and positions the business as a reliable partner, not just a borrower.

Here's how to do it well:

Proactive Updates

Keep your lender informed before issues arise. If you expect a delay in curtailment payments, a slower sales month, or an inventory shift (e.g., buying more seasonal units), notify them early. Lenders don’t like surprises—they value visibility and foresight.

Transparency During Audits

Flooring lenders typically perform routine floor checks (audits) to verify that inventory they’re financing is actually on the lot. Be organized, have all serial/VIN numbers accessible, and provide real-time updates if any units have been sold but not yet paid off. This shows operational maturity and reduces scrutiny.

Fast Payoffs After Sales

Promptly pay off the flooring balance when a unit is sold. Letting balances linger violates most floor plan agreements and is a red flag for lenders. If a delay is unavoidable (e.g., payment still clearing), communicate the reason and expected resolution date.

Regular Performance Conversations

Treat your flooring relationship like a business partnership. Schedule quarterly check-ins with your account rep to review line utilization, sales volume, and upcoming needs. This builds rapport and can help you qualify for more favorable terms or expanded limits in the future.

Be Honest About Struggles

If you’re experiencing slower turnover, mounting curtailments, or cash flow stress, share this candidly with your lender before it spirals. Lenders are more likely to offer solutions—such as temporary extensions, payment adjustments, or restructuring—when they feel you’re working with them, not hiding from them.

Keep Contact Info Current

Make sure your lender has direct contact with key finance personnel (controller, bookkeeper, GM), not just ownership. A single point of contact can cause bottlenecks or missed updates.

——- Bottom Line ——-

Lender communication is about predictability and partnership. Companies that treat their lender as an operational ally—not just a source of capital—build trust, earn flexibility, and create long-term financing leverage.

Related Topic
See:  CURTAILMENT… a scheduled or triggered partial principal repayment that a borrower
(e.g., a dealership) must make on a financed inventory item before it is sold.