From Investopedia:
What is Floor Planning?
Floor planning is a form of financing for large ticket items displayed on showroom floors or lots. Automobile dealerships utilize floor plan financing to run their businesses; dealerships for trucks, recreational vehicles and boats, as well as home appliance retailers also turn to floor plan loans to purchase inventory. Specialty lenders, traditional banks and finance arms of manufacturers provide the short-term loans and they are repaid as the items are sold.
BREAKING DOWN Floor Planning
Floor planning is offered by many types of lenders, big and small. Specialty finance companies fill an important role in providing credit for dealerships to purchase inventory. Despite some consolidation in the industry, the auto dealership industry is fragmented among thousands of independent dealerships, many of which have unique needs. Specialty financiers customize floor planning terms to suit the needs of these customers. If a new car dealership wishes to purchase 100 of the latest Lexus SUVs, it can take out a loan to buy the cars and, as the dealership sells them to its customer, repay the lender principal and interest. The loans are always collateralized by the purchased inventory, and in certain cases, by the building or property of the dealership.
Because of the fragmented nature of these dealerships, which suppresses economies of scale, financing expense tends to be higher than for a large corporate entity. Floor planning is a flexible way to finance inventory for a dealership, but in the cyclical industry of automobiles, it must be managed responsibly so that the financing cost burden does not exceed the dealership’s capacity to repay.
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Floor plan financing was also popular in the early days of computer retailing. Every PC or large piece of computer equipment would be financed one serialized unit at a time. Typically, the finance vendor would send around a person to take inventory of the financed items. If it was found that serialized equipment was sold and the financing vendor not paid, the vendor would demand payment on the spot via certified funds for everything sold and not paid.