As many new services appear for banks, it is important to be cautious when performing diligence on potential new vendors that offer floor plan lending. Implementing a strong due diligence process for new vendors at your bank ensures a foundation for healthy risk management, even as your business scales. It helps banks follow appropriate regulatory requirements and be more prepared for any future changes by knowing where various types of risk exist within their ecosystem.

Balancing Risk Management

When it comes to floor plan lending, banks often face even more burdensome challenges to manage risk. From audits to title management to complicated data reconciliation, there are many complex moving parts to begin with.

In 2021, the Federal Reserve, the FDIC and the OCC came together to publish guidelines on how community banks should incorporate financial technology. A few years later, we believe these guidelines remain vital to incorporating new technology into your floor plan lending business. They have outlined six key sections, and we believe community banks with floor plan offerings should pay close attention.

Floor Plan Lending Considerations

Floor plan lenders should ask specific questions to their unit:

Business Experience. Does your potential partner understand the floor plan industry? Have they worked with dealers or manufacturers in the past, and do they understand the full scope of the industry? Do they have a proven track record of working with other floor plan providers?

Financial Condition. Have you reviewed their financial information to ensure long term stability? While many fintechs may be unable to provide traditional reporting, are you able to be comfortable that they will be able to support your floor plan lending in the future? Who has invested in them?

Legal and Regulatory Compliance. Is the company properly registered and compliant with local regulations in your jurisdiction? Do they have experience working within regulatory parameters? When it comes to situations like audits and auctions, are they properly licensed and familiar with local laws?

Risk Management and Controls. Does the company have proper internal controls and audits? Are they able to provide adequate reporting to ensure an open partnership? How do they think about risk management?

Information Security. Does your vendor have appropriate channels to maintain the security of your data? With potentially thousands of payments a day and thousands of dealer relationships, are they able to ensure the integrity of yours and your clients’ data? If implementing new software, are there adequate cybersecurity safeguards in place?

Operational Resilience. Given the physical nature of floor plan lending assets, what are the business continuity plans the vendor has in place? Will your program buckle if the vendor has a cyber shutdown? Is the vendor willing to put in place a favorable agreement for your bank that meets your needs fully? How are subcontractors used, given the complexity of a floor plan program?

We believe that implementing a new vendor should be a thorough but uncomplicated process. Financial technology firms like Vero can help you grow your floor plan lending business.

If you have a portfolio and are looking to upgrade how you operate, consider contacting our team of experts today to learn more about the best technology solutions for your inventory financing needs. We are proud to work with Sopra Banking Software to offer a comprehensive, trustworthy, and user-friendly loan management system.