Explainer: what is wholesale financing

Wholesale financing, also known as stock or floorplan financing, is a critical funding solution that allows dealerships to maintain inventory without tying up capital. This explainer outlines how the system works, the financial structures involved, and the opportunities and challenges for dealers, manufacturers, and lenders.

Wholesale financing, also known as stock financing or floorplan financing, refers to the funding solutions that allow dealerships to purchase assets, such as cars, trucks, motorcycles, motorhomes, and agricultural and construction machinery, for stock before selling them to retail customers. The assets can be purchased from manufacturers and distributors for new assets or auction houses, trade sales, part exchanges, and direct sales for used assets.

The assets can be on display for sale, at an import centre, out on demonstration, used as a courtesy vehicle (loaned), or out on hire, depending on the type of asset, its use, and the schemes available from funders.

Wholesale financing enables dealers to maintain inventory without tying up large amounts of capital, ensuring a steady supply of customer assets.

How wholesale financing works

Instead of paying upfront for assets, dealers obtain lines of credit from banks, independent finance houses, or captive finance companies (e.g., automakers’ financing arms). Dealers draw down the funds as they acquire the assets and repay the financing as they sell the vehicles, with interest and fees applied during the borrowing period. This becomes an entirely revolving financing facility where, in theory, the financed balance could remain static as assets are bought, sold, and replaced in symmetry.

When new assets are “sold” by a manufacturer or distributor to a dealer, they are often “on consignment,” meaning the sale to the dealer doesn’t occur until the asset is sold to a customer. Wholesale funding is provided at this point to ensure good cash flow for the manufacturer or distributor and the dealer. However, the legalities are that the dealer ultimately has the right to return the asset at the end of the funding period if it hasn’t sold and the dealer doesn’t want to risk owning it.

Used assets are generally funded in this space by utilising an agency agreement. Dealers will have an agreed line of credit from the financing company and buy used assets from many different sources, including buyer trade-ins.

The agency agreement sets out that when the dealer buys the asset, they do so as the financing company’s agent. This enables the title in the asset to pass directly to the financing company (which they need as primary collateral for the loan).

This means that the dealer must pay for the asset before being reimbursed by the financing company. Speed of decision for the funding of assets and speed of payment become crucial to ensure smooth cash flow for the dealer.

Key participants

1. Manufacturers (OEMs) – Provide assets to dealers and may offer their own financing through captive finance subsidiaries.
2. Dealerships – Use wholesale financing to stock inventory and manage cash flow.
3. Captive Finance Companies – OEM-owned lenders like Volkswagen Financial Services, Toyota Financial Services, PACCAR Financial, and JCB Finance.
4. Banks & Independent Lenders – Offer alternative or supplemental financing solutions.
5. Auction Houses & Used Car Wholesalers – Provide pre-owned assets to dealers.

Types of wholesale financing

1. Stock financing

• Banks and independent finance houses provide a revolving credit line that allows dealers to buy new or used assets.
• Assets are often purchased by the dealer as an agent of the financing company, ensuring a clear route to clean the title for the financing company.
• Each asset is funded individually within the credit line, and loan amounts are based on the purchase price or value of the assets, depending on whether they are new or used.
• The assets serve as primary collateral for the loan.
• Interest is charged on the loan until the asset is sold or the funding period has ended.

2. Auction financing

• This is a derivation of stock financing provided by banks and independent finance houses where funds are paid directly to auction houses when the dealer has a credit line facility and purchases an asset from an auction.
• Dealers can bid on assets without needing immediate full payment, conserving cash flow and speeding up the buying process.
• Each asset is treated within the credit line in the same way as for stock financing.

3. Captive finance programmes (floorplan financing)

• Captives are either owned outright by the OEM or a joint venture between the OEM and a bank or finance house.
• A feature of these programs is often special incentives, including interest-free funding, lower interest rates, or extended terms.
• New assets are often sold “on consignment” which can allow for a transfer to another dealer if that other dealer has a buyer for that particular asset. The asset is “deconsigned” from the original dealer and then “reconsigned” to the new dealer.
• A full spectrum of facilities is often available, including demonstrator, loan, hire, etc to fulfil the dealers’ obligations to the OEM.
• Captives also often offer used stock financing in support of the dealer (to assist in funding part exchanges), particularly where there are approved used programmes in place.

Key benefits of wholesale financing for dealers

✅ Inventory Management – Allows dealers to maintain a diverse and sufficient asset selection with minimal / zero upfront capital investment.
 ✅ Cash Flow Optimisation – Frees up capital for day-to-day operations, marketing, and expansion.
 ✅ Scalability – Helps dealerships grow by financing larger inventories.
 ✅ Competitive Advantage – Access to manufacturer incentives and flexible financing terms when utilising floorplan financing.

Challenges & risks

Higher rates – when base rates rise and a high-interest rate environment prevails, the increased financing costs can erode profitability.

Market Fluctuations – variability in demand for the assets and, subsequently, their resale values impact profitability.

Loan Repayment Pressure – Dealers must sell assets promptly to minimise interest expenses and avoid having to repay the lender before the asset is sold if the agreed number of funding days is reached. This can severely impact cash flow.

Repossessions – Lenders can reclaim unsold inventory if dealers default.

Wholesale financing is a vital tool for most dealerships, ensuring a steady supply of assets while preserving cash flow. It’s a vital tool for manufacturers and distributors, enabling them to move manufactured assets past the factory gate and into their franchised dealers whilst getting paid, aiding cash flow. However, careful financial management and market awareness are crucial to maximising profitability and avoiding liquidity risks for all participants.

Final thoughts

The best analogy to describe wholesale financing is the duck on the pond scenario: above the water, it swims serenely around (this is the financed balance within the credit limit that barely moves) whilst beneath the surface, it paddles furiously (these are the purchases, sales, and replacements of assets that take place over and over).

Paddling furiously involves many financial transactions and to ensure they can be managed effectively; it is vital that specialised wholesale systems are deployed. They maximise automation for the benefit of faster funding and lower costs and connect directly to ancillary services electronically to counter fraud risk. Because of this, wholesale funding ticks more boxes for risk and return in the modern age with further gains to come as AI is deployed in this space.

Simon Bryant is Head of Wholesale Sales at NETSOL Technologies