Floor plan financing is multi-billion dollar industry and a key element of the auto industry in Canada. This type of financing is in effect short term inventory financing for both new and used car dealerships. The financing allows a dealer to carry sufficient inventory to satisfy customer needs and demands.
The average term for a car being on a dealership lot tends to be up to 90 days. The floor plan financier registers liens on each vehicle and when the vehicle is sold, that lien is removed. Lenders must have reasonable confidence in the financial viability of the dealer. Dealers also are subject to rigorous audits of the inventory. The lender wants to know the car is still there and hasn't been sold and not paid for of course. Therefore VIN's are checked regularly by finance company personnel, insurance is validated, and random inspections are common.