Floor Plan Financing Agreement Template for Canada

A Floor Plan Financing Agreement is a specialized revolving credit facility that enables dealers to finance their inventory of high-value goods, such as vehicles, equipment, or machinery. Under Canadian law, this agreement creates a security interest in the dealer's floor stock, allowing financial institutions to provide continuous funding while maintaining collateral protection through the inventory itself.

When do you need this document?

You need a Floor Plan Financing Agreement when operating as an authorized dealer requiring substantial inventory investment. Auto dealerships commonly use floor plan financing to stock new and used vehicles without tying up their working capital. Equipment dealers, marine dealers, and recreational vehicle dealers also rely on these agreements to maintain adequate inventory levels. The arrangement is particularly valuable for seasonal businesses that need to build inventory before peak selling periods but cannot afford to purchase all stock outright. Manufacturing equipment distributors and heavy machinery dealers frequently use floor plan financing to display expensive units while managing cash flow effectively.

Key legal considerations

The agreement must establish a valid security interest in the inventory under provincial Personal Property Security Act (PPSA) legislation. You must understand the advance rate structure, which typically ranges from 80-100% of wholesale cost depending on the type of inventory and your creditworthiness. The agreement will include strict reporting requirements for inventory additions, sales, and aging reports. Payment terms typically require you to remit proceeds from sold inventory within a specified period, often 15-30 days. Default provisions are comprehensive and may include cross-default clauses with other financing arrangements. The lender will require appropriate insurance coverage on all financed inventory, naming them as loss payee or additional insured.

Legal requirements in Canada

Under Canadian federal and provincial law, floor plan financing agreements must comply with multiple regulatory frameworks. The Personal Property Security Act in each province (except Quebec, which follows Civil Code provisions) governs the creation and perfection of security interests in inventory. Banks operating under the Bank Act have specific powers regarding inventory financing that non-bank lenders may not possess. Interest rate disclosure must comply with the Interest Act requirements, including annual percentage rate calculations and disclosure timing. The agreement must address goods and services tax (GST/HST) implications for inventory financing. Provincial consumer protection legislation may apply if the financed inventory includes consumer goods. In Quebec, hypothec provisions under the Civil Code replace PPSA requirements, requiring different documentation and registration procedures for security interests.