A motor vehicle dealer’s new car inventory can run to millions of dollars. Even a small used car dealership needs to acquire enough inventory—hundreds of thousands of dollars in cars and light trucks—to meet their potential customers’ needs.

Floor planning helps dealers build up inventory through a loan secured by the purchased vehicles. Here’s how it works: A manufacturer or finance company loans the dealer money (usually as a line of credit) to buy new or used vehicles to put on the sales floor (hence the term, “floor planning”). When a vehicle is sold, the dealer pays off the portion of the loan that was used to buy that vehicle, plus any accrued interest and fees.

The vehicles serve as collateral. The lender providing the financing has a “purchase money security interest” (PMSI) in the dealer’s inventory. (Think of the bank’s security interest when a customer takes out a loan to buy a car.) The lender usually keeps the certificate of title or manufacturer’s certificate of origin (MCO) until the dealer makes the required payment against the loan.

If the dealer doesn’t sell a vehicle within a certain amount of time and cannot make the required payment on the loan, the lender can refuse to release the title or MCO. The lender may even repossess a vehicle that the dealer has delivered to a buyer.