A car dealer can secure credit from an auction primarily by establishing a formal relationship with the auction's financing department, which involves a business credit application and a proven track record. The most direct path is to become a registered dealer with the auction, which grants access to their in-house floor planning services. Floor planning is a form of inventory financing where a financial institution pays the auction for the vehicle, and the dealer repays the loan once the car is sold.
The process starts with a thorough application. Auctions and their lending partners will scrutinize your business's financial health. Key factors include:
- Business Credit History: A strong business credit score (e.g., from Dun & Bradstreet) is crucial.
- Time in Business: Most lenders prefer dealers who have been operational for at least one to two years.
- Bank References: You'll need to provide references from your current business bank accounts.
- Personal Credit of Principals: The credit scores of the business owners are often considered.
- Down Payment: Be prepared to make a down payment, typically 10-25% of the vehicle's cost.
Here is a table outlining common requirements and examples from major auction lenders:
| Requirement Category | Specific Criteria | Example from a Major Lender |
|---|
| Time in Business | Minimum operational history | At least 24 months of continuous operation |
| Business Credit Score | Minimum score from a major bureau | D&B Paydex Score of 70 or higher |
| Dealer License | Current, valid license in good standing | Must be provided and verified annually |
| Bank References | Positive relationship with a bank | 2+ active business checking accounts |
| Inventory Turnover | Demonstration of sales velocity | Average inventory turnover of less than 90 days |
| Personal Guarantee | Owner's personal liability | Often required for new or smaller lines of credit |
| Down Payment | Initial capital requirement | 15-20% of the vehicle purchase price |
Once approved, you'll receive a credit line or floor plan limit. It's critical to manage this responsibly by making timely payments. Building a positive reputation with the auction's credit manager can lead to increased limits over time. Always understand the terms, including the interest rate (often expressed as an annual percentage rate or APR) and any fees for late payments or extending the floor plan period beyond the standard 30-60 days.
