Quick answer
Car dealers mostly borrow to buy stock, using floorplan finance that funds each vehicle and is repaid when it sells. They also borrow for reconditioning, workshop gear, yard improvements and buying out other dealers. Lenders look at stock turn, how long cars sit, the dealer's licence and how trade-ins with finance owing are handled. Banks suit established franchise dealers; specialist and non-bank lenders often fund independent used car yards.
Key points
- Stock is the business: most dealer borrowing is floorplan finance, drawn car by car and repaid as each one sells
- Aged stock costs money every day it sits, and many floorplan facilities ask for part repayments on cars held too long
- Taking a trade-in with a loan still owing means paying that loan out before title passes, which ties up cash fast
- In NSW, used cars under 10 years old with fewer than 160,000 km carry a 3 month or 5,000 km dealer guarantee, a real cost to budget for
Strip a car yard back to its numbers and it’s a stock business. The dealer buys a car, spends money making it presentable, pays to hold it, and hopes to sell it before those costs eat the margin. Every lender who looks at a dealership is really asking one thing: how fast do these cars become money again?
How does floorplan finance actually work?
Floorplan is the backbone of dealer lending. Instead of borrowing a lump sum, you get a facility limit, and the lender pays for each vehicle as you buy it, whether from an auction, a wholesaler or a trade-in. Each car sits on the lender’s books individually, usually identified by its VIN, and the funder registers its security interest against that car on the PPSR.
When the car sells, you repay that unit’s balance, normally within a few days, and the limit becomes available again. Interest or holding fees accrue on each car only while it’s on the floorplan.
Three features catch new dealers out:
- Curtailments. Many facilities ask you to repay a slice of a car’s balance once it’s been in stock past a set number of days, then more at later milestones. Lenders use it to stop stale cars from quietly building up on the facility.
- Audits. The lender, or someone acting for it, turns up and counts cars against its list. Every financed vehicle must be on the lot or accounted for.
- Sold out of trust. If a car sells and the floorplan isn’t repaid promptly, that’s a serious breach. It’s the quickest way to lose a facility.
Floorplan is a form of stock finance. Franchise dealers usually get theirs through the manufacturer’s finance arm or a major bank. Independent used car dealers more often deal with specialist and non-bank funders, or fund stock with a secured line of credit over property.
What does aged stock really cost?
It’s worth putting a dollar figure on it, because the margin on a used car is rarely as big as the sticker suggests.
| Days in stock | What’s happening to that car |
|---|---|
| 0–30 | Fresh, priced to market, holding costs modest |
| 31–60 | Holding costs mounting; first price cut often needed |
| 61–90 | Curtailment payments may kick in; margin shrinking |
| 90+ | Many dealers wholesale it to free up the cash and the limit |
Picture a $28k hatch with $3k of expected gross profit. Add reconditioning, detailing, advertising, floorplan fees and the curtailment that starts after a couple of months, and a car that sits for four months can make almost nothing. Dealers who track every unit’s age weekly tend to have healthier facilities and happier lenders. Our cash flow gap calculator helps model how much cash slow stock is locking up.
Why can trade-ins drain your cash?
This is the cost many first-time dealers underestimate. A customer trades in a car that still has $14k owing to their lender. To give the new buyer clear title, the dealer has to pay out that loan, often before the trade-in has been reconditioned, let alone sold.
In Victoria, a dealer not handing over clear title is listed among the grounds for a claim against the Motor Car Traders Guarantee Fund, which shows how seriously regulators take it. A PPSR search on every trade-in shows any security interest, write-off record or stolen flag before you commit.
Do this five or six times a month and you can have $60k or more of payouts sitting in cars that haven’t earned a dollar. Some floorplan facilities will fund trade-ins, payout included; others won’t. Ask before you sign.
Weighing up a floorplan, a property-backed limit or a straight loan for stock? Send through a quick enquiry and we’ll walk you through it. It’s about a minute’s work, and your credit history isn’t searched to answer it.
What else do dealers borrow for?
- Reconditioning and detailing equipment, plus workshop hoists and diagnostic tools. Equipment finance fits these well.
- Yard improvements: sealing, lighting, fencing, signage and a display building.
- The property itself. Many dealers aim to own their site eventually. See commercial property loans.
- Digital stock listings and a proper website, since most buyers start their search online.
- Buying another yard or a franchise. See business acquisition loans and our guide to buying a franchise.
- Working capital for licensing, insurance, salaries and the cost of the warranties below.
What do warranties and licences mean for a lender?
Dealer licensing is state-based. Victoria licenses motor car traders through Consumer Affairs Victoria, NSW and Queensland have their own motor dealer licences, and the other states and territories run similar schemes. Lenders will confirm your licence is current, and a clean record matters.
Statutory warranties carry a cost too. In NSW, a used car bought from a dealer that’s under 10 years old with fewer than 160,000 km on the clock comes with a dealer guarantee of 3 months or 5,000 km, whichever ends first. Other states have their own versions. Smart dealers set aside a warranty reserve per car instead of being caught short by each warranty claim, and a lender will be reassured to see it.
How do banks and other lenders view dealerships?
Banks like established franchise dealers with strong manufacturer relationships, years of audited accounts and property security. When you fit that picture, a bank’s floorplan and property lending are usually the cheapest money available, and worth taking seriously.
Specialist and non-bank lenders are more common for independent used car yards, newer dealers and anyone with a patchy year behind them. They’ll typically focus on:
- stock turn and average days in stock
- gross profit per unit, after reconditioning
- how many cars are financed versus owned outright
- trade-in payouts and how they’re funded
- the owner’s experience in the trade
- ATO debt, which most of these lenders weigh up individually rather than refusing outright
If the bank has said no, our pages on declined bank applications and funding stock and inventory map out the next steps.
Documents a dealer should have ready
- Trading account statements covering at least the last six months
- Your latest financial statements and BAS
- A current stock list showing each car’s purchase price, date bought and asking price
- Your existing floorplan statement, if you have one
- Your dealer licence details and premises lease
- Recent sales figures by month
- An ATO account statement if anything is owing
Worked example: an independent yard scaling up
Figures are illustrative. An independent used car dealer in Geelong holds about 35 cars, roughly half funded by an older facility and half bought with the owner’s own cash. Sales average 22 a month. The owner wants to hold 55 cars to meet demand for late-model utes and SUVs, but the existing funder won’t raise the limit.
A specialist floorplan funder offers a larger facility after reviewing the stock list and confirming that the yard’s average days in stock sits under 45. The owner’s own cash, previously tied up in stock, is released by moving those cars onto the new facility, and some of it is set aside as a warranty and curtailment reserve. A separate equipment loan funds a second hoist for the reconditioning bay so cars reach the front line faster.
Is your next delivery of stock ready to go?
Dealers win by moving cars quickly and keeping their facility in good standing. The right structure makes both easier.
We’d be glad to look at your stock, your yard and what you’re trying to build. Filling in the enquiry takes roughly sixty seconds, and no credit search is run when you do. Your file isn’t sent out to dozens of finance companies. Someone here reads it through, then rings you to talk about the yard. Exact stock numbers, monthly sales and the amount you’re after help us bring you a workable structure straight away.
Frequently asked questions
What is floorplan finance for car dealers?
It's a revolving facility that pays for each vehicle you buy, held as the lender's security until you sell it. When the car sells, you repay that car's balance and the limit frees up for the next purchase. The lender audits the yard regularly to check every financed car is still there or has been paid out.
Can a new used car dealer get floorplan finance?
It's harder without a track record, but not impossible. Expect a smaller limit, closer audits and a request for security such as property. Some new dealers start with a secured line of credit or a business loan against property to buy their first stock, then move to a dedicated floorplan once they've traded for a while.
What happens if a financed car doesn't sell?
Holding costs keep running, and many facilities require you to pay down part of the balance once a car passes a set age. That's why dealers watch stock days closely and wholesale slow movers before they become expensive.
Do I need a dealer licence to get finance?
You need a licence to trade as a dealer in every state, and lenders will check it. A licence that's current and clean is basic to any application. Licensing is run by each state's fair trading or consumer affairs agency.
Can a dealer borrow to buy the yard or workshop?
Yes. Buying the land and buildings is usually done with a commercial property loan, and banks are often very competitive here. If the bank won't move fast enough for a settlement date, a short-term property-secured loan can bridge until a longer facility is in place.