SBA’s Pilot Loan Program Relaunch Underway

February 21, 2011 by · Comments Off on SBA’s Pilot Loan Program Relaunch Underway 

Credit unions and other lenders looking to increase access to inventory financing for auto, boat, RV and other dealerships will be able to do so again through the relaunch of an SBA pilot loan program, the Credit Union Times reported.

The Small Business Jobs Act of 2010 included a provision for relaunching the SBA’s Dealer Floor Plan Pilot Loan program, which first became available in July 2009 and was made available again Feb. 8, according to the SBA. The pilot is part of the SBA’s overall 7(a) loan guarantee program. The Jobs Act also increased the maximum size for 7(a) loans to $5 million, up from $2 million, which includes loans made through the DFP pilot program.

“Dealerships are a cornerstone of local business communities,” said SBA Deputy Administrator Marie Johns. “As we continue to see our economy recover, the relaunch of this pilot provides another tool, alongside SBA’s other programs, to help them succeed and create jobs in their local communities.”

Floorplan financing is a revolving line of credit that allows a dealership to obtain financing through SBA’s 7(a) program for inventory that can be titled, such as autos, RVs, manufactured homes, boats and trailers. As each piece of collateral is sold by the dealer, the loan advance against that piece of collateral is repaid. As the loan is repaid, the dealer can borrow against the line of credit to add new inventory.

The program is available to qualifying small businesses, including new and used automobile, motorcycle, RV, manufactured homes and boat dealers. The SBA said it has issued a new maximum alternative size standard to allow businesses with $15 million net worth and $5 million in net income measured over two years to have access to the program.

The loan size can range from $500,000 to $5 million. The SBA said it will guarantee 75% on floorplan lines of credit when the lender advances no more than 100% of the invoiced cost for new inventory and 100% of the cost or industry based wholesale book value, whichever is less, for used inventory.

Loan proceeds may be used for the acquisition of titleable inventory for retail sales, to refinance existing floor plan lines of credit with another lender, or to refinance or replace existing floorplan lines of credit with the participating lender. Proceeds may also be used to pay the SBA guaranty fee.

All SBA-approved lenders including credit unions may make DFP loans, according to the agency. Lenders with more than $1 billion of floorplan lines of credit in their current portfolios may apply for delegated authority, which would expedite the lending process.

“As a result of the credit crunch in late 2008 and early 2009, dealerships saw a significant decline in the availability of this type of inventory financing,” Johns added.

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