The Floor Plan in an RV Dealership Acquisition: Curtailments, Audits and Consent
Many RV dealers do not own their new inventory outright. New travel trailers, fifth wheels and motorhomes are usually carried on a floor plan line from a specialized inventory lender, with each unit paid off when it sells. In an acquisition, the RV dealer floor plan becomes a moving part of the closing: the seller’s line usually has to be paid off, the buyer generally needs its own arrangement in place, and the condition of the inventory affects how much cash both sides need.
This article explains how an existing floor plan arrangement may affect the purchase of an existing, operating RV dealership. It describes floor plan lines provided by specialized lenders and does not describe a product offered by US Professional Funding. Terms vary by lender and agreement, and buyers should review them with qualified attorneys and accountants. Nothing here is legal or financial advice.
How a Floor Plan Works
When a dealer orders new units, the floor plan lender typically pays the manufacturer and holds a security interest in each unit. The dealer pays interest while the unit sits on the lot and repays the principal when the unit sells, usually within a set period after the sale. Some floor plan lines also cover used units, subject to the lender’s terms.
Curtailments
Floor plan agreements frequently require the dealer to pay down part of a unit’s balance once it has been in stock for a certain period, and again at later intervals. These curtailments can consume cash during a slow season, especially for higher-priced motorhomes. Buyers should review the curtailment schedule, which units are approaching a payment and how the seller has handled curtailments in the past.
Inventory Audits
Floor plan lenders periodically audit the lot to confirm that every financed unit is present or properly accounted for. Audit reports can reveal units sold but not yet paid off, units out for demonstration or repair and recordkeeping problems. A history of audit issues is a warning sign buyers and their acquisition lenders will want to understand.
Consent and the Payoff at Closing
A floor plan line generally cannot simply pass to a buyer. In an asset purchase, the seller’s floor plan is typically paid off from the buyer’s purchase of the new inventory, and the buyer’s own floor plan lender finances those units going forward. In a purchase of ownership interests, the existing lender’s consent may be required. Coordinating payoff letters, releases of liens and the buyer’s new line is an important part of closing logistics.
Approval Comes in Pairs
Floor plan lenders may want to see manufacturer approval, and manufacturers may want to see a floor plan arrangement. Buyers should start both processes early. See our article on RV manufacturer approval.
Aged Units Change the Math
Units that have carried through one or more seasons may have significant curtailments already paid, may be worth less than the remaining floor plan balance and may need to be discounted to sell. How these units are valued at closing affects both price and cash needs. See our guide to aged RV inventory.
Planning Cash Beyond the Floor Plan
Even with a floor plan line in place, a buyer needs cash for curtailments, interest, used inventory, parts, payroll and seasonal swings. Acquisition lenders typically want to see that working capital has been planned. Our page on RV dealership working capital and lines of credit describes how we approach those needs.
What Acquisition Lenders Review
Lenders financing the purchase typically ask about the buyer’s floor plan arrangement, the curtailment schedule, audit history and the age of inventory. Our article on RV dealer loan requirements explains the documentation frequently requested. Dealers already carrying heavy curtailment obligations can also review our guide to RV dealer debt restructuring.
US Professional Funding helps buyers finance the acquisition of existing, operating RV dealerships and can help plan acquisition financing alongside the buyer’s floor plan arrangement. Learn more about our RV dealership acquisition financing.
