Floor Stock Loan
A floor stock loan is a specialised financing facility that allows dealers and retailers to purchase inventory from manufacturers, with the financed inventory serving as collateral.
Key Characteristics
- Inventory-based financing for dealers and retailers.
- Stock serves as primary collateral for the loan.
- Flexible disbursement based on stock requirements.
- Interest is charged only on the amount utilised.
- Commonly used in automotive, electronics, and consumer goods sectors.
Common Products
| Product Name | Description |
|---|---|
| Auto Dealer Finance | For car dealerships to stock vehicles. |
| Electronics Floor Plan | For electronics retailers and distributors. |
| Consumer Goods Financing | For fast-moving consumer goods dealers and retail outlets. |
| Machinery Floor Stock | For heavy equipment and machinery dealers. |
Operational Workflow
- Register the dealer and assess its creditworthiness.
- Audit and value the eligible stock using approved valuers where required.
- Approve and document the facility.
- Verify the purchase order and obtain manufacturer confirmation.
- Pay the manufacturer directly or reimburse the dealer in accordance with the facility terms.
- Conduct periodic stock audits and compliance monitoring.
Example Calculation
Scenario: A dealer has an approved floor stock limit of SGD 500,000 and utilises SGD 300,000 for 30 days at an annual interest rate of 10%. The facility uses an ACT/365 day-count convention.
Illustrative stock-rotation target: 60-day average stock-holding period. The applicable target depends on the facility terms and bank policy.
Compliance and Monitoring
- Verify the physical stock at the frequency required by the facility terms.
- Track stock movements using the available inventory records and monitoring systems.
- Monitor insurance coverage for pledged stock.
- Review the dealer's sales performance.
- Analyse facility utilisation periodically.
- Review stock-ageing reports and investigate slow-moving inventory.