Relationship Banking Crucial in Floorplan Resolution
Editor’s Note: This column appeared in Monday’s edition of the Sarasota (Fla.) Herald-Tribune.
Floorplan financing may seem so “ho hum” to most of us. But if you drive an automobile, want to buy a boat or RV, the lack of it can severely crimp your choices.
That is because it is a line of credit that dealerships use to stock up on inventory. Without it, our “want it now” gratification would be put on hold until the dealer can get it from the manufacturer.
Procuring floorplan financing was not problematic until the automobile industry got into trouble, the economy tanked and credit got tighter than Scrooge’s piggybank. Lines of credit became harder to get.
The floorplan financing crisis came to my attention when I received e-mail from a small RV manufacturer and retailer in Southwest Florida. He has “25 years of manufacturing experience (and) maintained an impeccable track record with our bank.”
Yet, to continue providing floorplan financing, his bank representative got skittish securing it solely with the vehicles as collateral and asked him to pledge real estate as well.
Alternatively, the bank told him to find another lender.
This scenario is playing out nationwide.
“In recent months, we’ve seen a dramatic decrease in the availability of credit for financing dealership inventories,” says Karen Mills, administrator of the U.S. Small Business Administration (SBA). “We want to be a partner for these small businesses and help ensure they have the resources they need to help keep their businesses open, save jobs and survive these tough economic times.”
Thus, SBA launched its dealer floorplan financing program on July 1.
The program guarantees revolving lines of credit to lenders that make dealerships loans secured by inventory that can be titled, such as automobiles, RVs, manufactured homes, boats and trailers.
As the dealer sells each vehicle, the loan advance against that piece of collateral is repaid. After the loan is repaid, the dealer can borrow against the line of credit to add new inventory.
The loan amount ranges from $500,000 to $2 million, and SBA guarantees up to 75% against default.
Some lenders say that servicing floorplan loans are too management-intensive for the rates and fees SBA allows them to charge.
Dealers say they need more than $2 million to buy enough inventory.
Additionally, large banks prefer lending more that $2 million while many small community banks lack experience making floor plan loans.
So it is too early to tell if the well-intentioned SBA program will have an impact.
Meanwhile, the RV manufacturer mentioned above has taken his loan request to a higher authority within his bank. “It appears they are willing to work with us,” he told me.
When times get tough, relationship banking is often the best path.