SBA offers floor-plan loans to car dealers

Once eagerly courted, now more often spurned by lenders, auto dealers could have a new alternate source of vehicle inventory financing in the U.S. Small Business Administration.

SBA Administrator Karen Mills recently announced the start this summer of a pilot program that will provide lines of credit to dealers in autos, boats, motorcycles, recreational vehicles (RVs) and manufactured homes through the SBA”™s 7(a) program for small businesses. Made through commercial lenders, the dealer floor-plan loans will be only for titled inventory and come with a 75 percent government guarantee and five-year maximum repayment term. The loans will range from a minimum of $500,000 up to the $2 million allowed under the 7(a) program.

As part of the American Recovery and Reinvestment Act, borrowers”™ fees on those SBA loans have been temporarily eliminated. For the dealer floor-plan program, the SBA has raised net income and net worth ceilings for eligible businesses so that about half of the nation”™s dealerships are expected to qualify, an SBA spokeswoman said last week.

The pilot program will begin July 1 and be offered through Sept. 30, 2010, when the SBA will determine whether or not to extend it.

“Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry,” Mills said when announcing the new program. “Floor-plan financing can offer some dealerships the opportunity to get through these tough economic times by allowing them to keep their inventory and cash flow intact, as well as save the jobs these small businesses provide.”

The SBA pilot program has been strongly supported by the national RV Dealers Association, Marine Retailers Association of America and National Automobile Dealers Association (NADA). NADA officials said they met numerous times with Obama administration officials to push for greater access to floor-plan loans, which are critical to dealers, many of whom are struggling to survive without access to credit to purchase vehicles for their lots.

“The success and continued operation of thousands of small, family owned auto dealerships across the country is directly connected to their ability to purchase both new and used vehicles to offer their customers,” said John Lyboldt, NADA vice president of dealership operations. “Nearly 20 percent of all retail purchases are new cars and trucks, so expanding access to credit for dealers will not only help revive the struggling auto industry but aid the overall economy as well.”

Westchester County auto dealer Jonathan Grant knows first-hand the radical shift in lending practices and impact of the credit squeeze in his business.

The majority owner of five area dealerships, Grant last October took over Hyundai of White Plains. A customer of Chrysler Financial for his Chrysler-Jeep-Dodge and Nissan lots in Yonkers and White Plains before that automaker”™s recent bankruptcy, the dealer for several months was unable to find a floor-plan lender for his Hyundai business. He paid rent on an empty showroom while the Korean automaker refused to ship cars until he secured inventory financing. The stalemate ended in April when Grant got a dealer credit line through Hyundai Motor Finance Co.

Like many auto dealers, Grant not long ago had numerous lending suitors seeking his floor-plan business ”“ “with bottles of champagne,” as another Westchester auto dealer described that courting. “Most of the banks who six or eight months ago would have lined up outside my door to do floor-plan financing have gotten out of the business temporarily” or have set “ridiculous” collateral requirements for credit, Grant said.

GMAC Financial Services temporarily has taken over floor-plan lending for his Chrysler and Nissan dealerships. The sudden drought of floor-plan financing, though, has forced other dealers in this region and across the country to close.

“If the SBA is willing to work with dealerships and give floor-plan financing, I think that”™s great,” Grant said.