Floor Plan Loan

Definition:

A special type of loan that is used to extend credit to a company for inventory that they have available for immediate sale. This loan is paid down by the company every time they sell one of the inventory items.

Examples:

An automobile dealer generally doesn’t have the money to purchase large numbers of vehicles for his showroom on his own, so he will usually apply for a floor plan loan from a bank to acquire his initial inventory.

Banks need to look carefully at applicants for any floor plan loans, because if a company goes bankrupt, the bank will lose all of its loan money.