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A Floor Plan Financing Agreement is a specialised commercial financing arrangement that allows dealers and retailers to fund their inventory purchases through a revolving credit facility. Under this agreement, the lender provides funds to purchase inventory while taking a security interest over that inventory as collateral. You'll find this arrangement particularly common in industries where businesses need to maintain substantial inventory levels, such as automotive dealerships, equipment retailers, and consumer goods distributors.

When do you need this document?

You need a Floor Plan Financing Agreement when your business requires ongoing inventory financing to maintain adequate stock levels. This document becomes essential if you operate a dealership selling vehicles, machinery, or high-value consumer goods where carrying large inventory is necessary for business success. The agreement is also required when transitioning from traditional bank loans to more flexible inventory-specific financing, or when expanding your business and needing increased working capital for stock purchases. Lenders will require this formal agreement to establish their security rights and define the terms of the credit facility.

Key legal considerations

The agreement must clearly establish the lender's security interest over inventory and comply with registration requirements under the Personal Property Securities Act 2009. You need to understand that the lender typically retains ownership of inventory until payment, creating specific obligations for inventory management and reporting. Insurance requirements are critical, as you'll need comprehensive coverage protecting both your interests and the lender's security. The agreement should address default scenarios, including the lender's rights to repossess inventory and your obligations during financial difficulties. Payment terms, interest calculations, and facility limits must be precisely defined to avoid disputes. Consider the impact on your cash flow, as floor plan financing often requires payments as inventory is sold rather than on fixed schedules.

Legal requirements in Australia

Under Australian law, floor plan financing agreements must comply with the Personal Property Securities Act 2009, requiring proper registration of security interests on the PPSR within prescribed timeframes. The National Consumer Credit Protection Act 2009 applies when the facility exceeds threshold amounts or involves consumer credit elements, requiring the lender to hold appropriate licensing. Corporate dealers must ensure compliance with the Corporations Act 2001, particularly regarding financial services licensing and directorial duties. The agreement must meet Australian Consumer Law requirements when inventory includes consumer goods, ensuring fair trading practices and consumer protections. Documentation must satisfy Australian contract law principles, including certainty of terms, consideration, and capacity requirements. State-based legislation may also apply depending on the nature of inventory and business operations, particularly for motor vehicle dealers who must comply with additional licensing and operational requirements.