The U.S. Small Business Administration (SBA) plans to offer government guaranteed loans to finance inventory for eligible auto, recreational vehicle, boat and other dealerships under a new pilot program announced in Kokomo, Ind., today by SBA Administrator Karen Mills, according to the Indianapolis Star.
The so-called dealer floorplan financing will be available beginning July 1, according to Mills.
She announced the new program during a visit to Howard County with Ed Montgomery, President Obama’s director of recovery for auto communities and workers.
“Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry,” Mills said. “Floorplan 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.”
Floorplan financing is a line of credit that allows dealers to borrow against their inventory, and then repay that debt as they sell their inventory or borrow against the line of credit again to add new inventory.
With the availability of credit the RV industry’s No. 1 issue, the Recreation Vehicle Industry Association (RVIA) and its industry partners have been working on several fronts to expand the alternatives for credit and have been successful with one effort to provide floorplan lending for dealers through the Small Business Administration (SBA).
The SBA will announce shortly plans to change current policy that precludes financing of RV floor plan loans through the 7(a) loan guarantee program, the RVIA stated in a news release. “This is great news since the SBA has moved with some urgency to temporarily permit floorplan lines of credit for assets which are ‘titleable’ (RVs, cars, trailers, motorcycles, and boats),” RVIA stated.
This week, the SBA told RVIA that effective on May 17, the agency will waive the floor plan lending prohibition. Using their pilot program authority, the SBA plans a “use of proceeds” program to provide dealers with lines of credit through SBA-approved bank lenders. The program will be effective May 17, 2009, through Sept. 30, 2010.
“This policy change should improve the availability of credit for many RV dealers to purchase new inventory from manufacturers. Details of the program as described to us are outlined below. A Federal Register Notice announcing the program should be released next week,” RVIA said.
Among the features are the following:
- Asset-based line of credit between $500,000 and $2 million, available for “titleable” assets through existing SBA lenders (does not have to be an existing floorplan lender).
- Since some states do not require titling of all trailers and truck campers, the SBA may address assets that require a Vehicle identification number (VIN) instead of “titleable asset.”
Applicants must meet SBA 7(a) program eligibility requirements including:
- The program is limited to businesses with a tangible net worth of $8.5 million or less and an average net income in the last two completed fiscal years of $3 million or less, excluding carry over losses.
- Rules of affinity apply toward the size standard (example of family-owned business with affiliates owned by other family members–all would count toward size standard.
- “Credit Elsewhere” Policy Applies – Requires financial statements of owners with 20% or greater ownership to determine whether their liquid assets are an alternative source of funds.
- Personal Guarantee – Requires a personal guarantee from each owner with 20% or more ownership.