Final answer:
Floor plan financing is a loan provided to dealerships to procure inventory without paying the full cost upfront, enabling a diverse showroom that can increase sales. The dealer repays the loan after each sale, usually with interest. This is one way financial institutions assist businesses, which must also adhere to governmental and zoning regulations.
Step-by-step explanation:
The finance division of a leisure boat manufacturer is dealing with a request for floor plan financing from a marine dealership manager. Floor plan financing is a type of short-term loan used by dealerships to purchase high-cost inventory, such as boats. This form of financing allows a dealership to have a variety of models on the showroom floor without having to pay the full cost upfront.The way floor plan financing works is that a lender pays the manufacturer for the cost of the boat, and once the boat is sold by the dealership, the dealer repays the lender, often with interest. This enables the dealer to offer a broader inventory to customers, potentially increasing sales since customers can view and test different models before purchase. The cost of this financing is a consideration for the dealer, who needs to ensure that the potential sales increase can justify the interest paid on the loan.
Financial institutions are crucial in facilitating business operations like these, by providing the capital necessary to fund inventory, which can lead to expanded sales and profits. However, businesses must navigate through various governmental restrictions and zoning regulations, which could limit their operations or influence the type of inventory they can hold. Lastly, when it comes to raising capital, companies may weigh options such as borrowing, issuing bonds, or selling corporate stock, depending on their needs, the costs involved and the potential dilution of ownership.