Used Car Dealers: 6 Questions When Floor Plan and MCA Claims Overlap

The inventory schedule cannot resolve competing creditor claims without the agreements behind it. A used car dealer facing an MCA demand should identify which vehicles, receivables, and sale proceeds each counterparty claims before deciding who receives the next payment.

A lot that also finances customer purchases has another category to examine. The dealership's debt to its own funder and the customer's obligation under a retail contract are separate relationships requiring different records.

1. Match Each Vehicle to Its Financing

Prepare a vehicle-level schedule identifying ownership and the documents associated with acquisition. The schedule should distinguish owned inventory, consigned vehicles, and units subject to financing arrangements.

Attach the relevant account statement and payment history. A vehicle's presence on the lot does not establish that the dealer owns it free of another claim.

Read the floor plan documents for the obligations associated with a sale. The article's title cannot establish a universal deadline or payment rule for every lender.

Identify any discrepancy between the financing schedule and the physical inventory. A missing or replaced vehicle should be investigated before the dealer represents the list as complete.

2. Trace the MCA Claim to the Collateral Description

The MCA agreement may describe purchased receipts and include a separate grant of security. Counsel should identify the actual terms before treating a broad financing statement as a claim to every vehicle.

New York UCC Section 9-315 generally addresses the continuation of a security interest following disposition and its attachment to identifiable proceeds, subject to exceptions. The provision does not announce a universal winner between a floor plan lender and an MCA provider.

The governing jurisdiction, collateral descriptions, and relevant agreements require review. Priority should not be inferred from the amount advanced or the fact that one creditor financed inventory acquisition.

A filing and the underlying security agreement perform different roles. The existence of a financing statement does not resolve the claimed balance or every question about enforceability.

If the funder identifies particular sale proceeds, obtain the accounting supporting that assertion. The dealer should be able to trace the sale and payment without treating every deposit as the proceeds of the same vehicle.

Counsel should also examine any agreement between creditors or consent to other financing. A general statement that the lender knew about the advance may not establish the terms of an enforceable arrangement.

3. Keep Customer Contracts Separate From Dealer Financing

For a dealer holding customer installment contracts, identify the owner of the payment rights and any agreement affecting those rights. Do not assume that retaining the paperwork means the dealership can transfer or pledge the account without further review.

The customer contract may raise consumer-law questions even though the dealership's MCA is commercial financing. Those questions require the applicable documents and qualified legal advice.

A demand involving customer payments should be reviewed before the dealer changes collection instructions. Obtain the exact notice and determine which accounts it identifies.

The dealer should not send customers an unsupported explanation that one creditor now owns every balance. The response needs to reflect the actual transaction and rights established.

Preserve payment records at the account level. A single deposit may represent several customer payments whose treatment differs under the relevant agreements.

If a customer disputes a balance, retain the dispute separately from the MCA negotiation. The dealer's need for cash does not determine the amount the customer owes.

A settlement forecast should use collectible amounts supported by the records. It should not depend on every customer making every anticipated payment without interruption.

4. Construct a Sale-Proceeds Budget Before Offering Settlement

The gross price of a sold vehicle is not necessarily cash available for an MCA payment. Identify acquisition financing, transaction expenses, and other obligations associated with the sale.

Prepare the calculation before committing proceeds. A settlement proposal can fail if it assumes money that must be accounted for elsewhere under the documents.

An inventory reduction may generate cash while reducing the dealership's future sales capacity. The forecast should show both effects rather than treat liquidation as an unlimited source.

If the business intends to continue, estimate the cost of replenishing the vehicles it needs to sell. The proposal should remain workable after the initial stock has been converted into receipts.

Do not assume that a voluntary transfer of inventory resolves the debt. The agreement should explain the credit applied and the treatment of any remaining balance.

If several vehicles are sold together, allocate the proposed proceeds on a documented basis. The combined price should not conceal which obligations relate to each unit or leave the dealer unable to explain the amount available after the transaction.

Keep each payoff quotation with its effective date. A figure obtained before additional sales or payments may need revision before the dealership can rely on it for closing.

A vehicle-specific ledger provides a useful check against optimistic totals. The owner should be able to identify the funds available from each contemplated transaction.

5. Evaluate Delancey Street for the MCA Portion

Delancey Street can assess the advance through its merchant cash advance settlement service, which offers a free, confidential initial review. Bring the MCA documents and a budget showing the floor plan commitments.

The company is a debt settlement provider, not a law firm. Independently licensed counsel handles legal representation, priority disputes, and questions concerning customer contracts.

Confirm which accounts the service covers. A floor plan lender's rights should not be assumed to change because the MCA provider accepts a different payment.

Review fees and the source of the proposed settlement funds. No provider can ensure creditor acceptance or determine competing rights through a marketing claim.

6. Require Releases That Match the Transaction

A resolution should identify the debt settled and the property or proceeds affected. Individual guarantees and customer payment directions may require separate provisions.

New York UCC Section 9-513 addresses financing-statement termination under specified conditions. Payment alone should not be assumed to authorize a debtor to terminate a filing without the required authority and procedure.

Ensure that the responsible party is assigned each required document or filing. The closing ledger should distinguish completed actions from promises awaiting performance.

Simply retain the executed terms with the vehicle and payment schedules. If proceeds continue to arrive after settlement, the parties should know how those receipts are treated.

The dealer's objective is to sell vehicles without creating uncertainty over every incoming payment. That requires a resolution grounded in the actual inventory and the rights each creditor can establish.