Most dealers pay for inventory with their own cash, a floor plan, or both. A floor plan is a revolving credit line from a specialty lender that pays the auction or seller when you buy a car. You pay interest and fees while the car sits, make scheduled paydowns (curtailments) if it doesn't sell in time, and pay off the advance when it sells. Floor plans let you carry more cars, but they're costly and strict, so most new dealers are better off starting with their own money.
Educational information only. This article is not legal or financial advice, and no lender named here is endorsed by California Dealer Academy.
In this article
- How a floor plan works
- The terms that cost new dealers money
- Floor plan lenders for independent dealers
- What lenders look for
- Start with your own money
- Frequently asked questions
How a floor plan works
- You're approved for a credit line, for example $50,000.
- You buy a car at auction or from another source, and the floor plan pays the seller. That's called "flooring" the car.
- Interest and fees accrue while the car is in your inventory, often calculated daily.
- Curtailments come due if the car hasn't sold by set points in time: a required partial paydown of the principal.
- You sell the car and pay off that car's advance, which frees up the credit line again.
- The lender audits you along the way to confirm every financed car is on your lot or accounted for.
The terms that cost new dealers money
| Term | What it means | Why it matters |
|---|---|---|
| Interest | Charged on each financed car while it's in stock, often as a daily rate | Every day a car sits costs you |
| Floor plan fees | Per-car fees charged when you floor a car, and sometimes at each renewal period | They add up fast on low-priced cars |
| Curtailment | A required principal paydown once a car has been financed past an agreed period. It's owed whether or not the car has sold (DealersCloud (Opens in new window)) | Aged inventory drains your cash |
| Audit | The lender confirms each financed car is on your lot or properly sold. NextGear's First Gear program requires self-audits within 48 hours of notice | Missing cars or late payoffs can end the line |
| Payoff when sold | Repaying a car's advance once you sell it | Selling a car without paying off its advance ("selling out of trust") breaks the loan agreement |
From experience (Garrett Eddings, former auto auction flooring representative; professional opinion): There are frequent audits, rules about how you can buy the car, and a lot of fees. Many of these lines charge a rolling daily rate, and you'll have curtailments as cars age.
Floor plan lenders for independent dealers
These come from each company's own materials. They're not endorsements. Programs, terms and eligibility change, so contact each lender directly.
| Lender | What it offers new or independent dealers |
|---|---|
| NextGear Capital (Opens in new window) | First Gear, for independent dealers in business 12 months or less. An introductory line of the greater of $50,000 or the state's legal minimum, without bank statements. Approval is at NextGear's discretion |
| AFC (Automotive Finance Corporation) (Opens in new window) | Applications ask for a government ID, your dealer license and proof of insurance |
| Kinetic Advantage (Opens in new window) | A floor plan company launched in 2021 with a focus on independent dealers |
| ACV Capital (Opens in new window) | ACV's floor plan financing. Eligibility depends on credit history, time in business, inventory levels and operational stability |
From experience (Garrett Eddings, professional opinion): I used to sell flooring for an auto auction, so I've seen this side up close. Some auctions only let you use their own flooring lines at their auction. The big players, like NextGear and AFC, can be a little less forgiving on terms with smaller dealers than with bigger ones. Companies like Kinetic are sometimes more forgiving with independent dealers and willing to take a bit more risk, which can mean better opportunities when you're starting out. Many flooring companies won't give you a line right out of the gate. NextGear will typically extend some kind of credit line to a new dealer, while companies like ACV Capital or Kinetic usually want to see a certain time in business to show financial viability.
What lenders look for
| Lenders commonly review | Why |
|---|---|
| Your dealer license, bond and insurance | Proof you can legally buy and sell, and that inventory is covered |
| Time in business | A track record of buying and selling (some programs, such as NextGear's First Gear, are made for new dealers) |
| Personal and business credit | Many floor plans require the owner's personal guarantee |
| Bank statements and financials | Cash to cover curtailments and fees |
| Your sales history | How fast your cars sell (turn rate) |
Start with your own money
From experience (Garrett Eddings, professional opinion): Always start with your own money. In my opinion, flooring more than about 10% of your business isn't the best way to go unless you have a rock-solid plan and the dealership to support it. If you're putting everything on flooring with a two- to five-car lot, it's probably not leading toward long-term success.
Why cash first works for small dealers:
- No daily interest or per-car fees eating your margin
- No curtailments forcing you to sell an aged car at a loss
- Time to learn your turn rate before borrowing against it
- A track record that helps you qualify for better floor plan terms later
Once you know how fast your cars sell and what you make on each, a floor plan can help you grow. Map it out first with the startup budget calculator and a business plan: see Is a dealer license worth it?
Frequently asked questions
What is floor plan financing for car dealers?
A revolving credit line that pays for inventory when you buy it. You pay interest and fees while the car is in stock, make curtailment paydowns as it ages, and repay the advance when it sells.
Can a new dealer get a floor plan?
Sometimes. NextGear's First Gear program is designed for independent dealers in business 12 months or less, with an introductory line of at least $50,000. Many other lenders want to see time in business first.
What is a curtailment on a floor plan?
A required partial paydown of a car's financed amount once it has been on the floor plan past an agreed period. It's owed whether or not the car has sold.
Should a new dealer use a floor plan or cash?
Most new dealers are better off starting with their own money and adding a floor plan once they know their turn rate and margins. Interest, fees and curtailments add up fast on a small lot.
Related questions
- How do independent dealers offer customer financing?
- How do you start a car dealership with no money?
- Is it worth buying cars at auction?
- Back to the California Dealer License FAQ
Next step: Start the 6-hour DMV-approved course for $99
Resources
- NextGear Capital: First Gear for new dealers (Opens in new window)
- AFC: How to apply for a floorplan (Opens in new window)
- ACV: Is your dealership ready for floorplan financing? (Opens in new window)
- DealersCloud: Floor plan curtailments explained (Opens in new window)
Sources: lender pages linked above (checked Oct 16, 2026) · Auto Remarketing, Jan. 18, 2021 (Opens in new window) (Kinetic Advantage launch). Verified 2026-10-16.
This article is for educational purposes only and is not legal or financial advice. California Dealer Academy doesn't endorse, recommend or have a business relationship with any lender listed. Floor plan terms vary by lender and dealer; read the full agreement before signing. The instructor notes reflect one instructor's professional experience and opinion.