The Small Business Administration (SBA) began accepting loan applications today (July 1) from RV dealerships for guaranteed floorplan loans under a new 15-month pilot program.
SBA officials, however, declined to predict when the money will start flowing.
”We expect there will be a ramp up period as we roll out the program,” said Eric Zarnikow, SBA associate administrator for capital access, during a telephone press conference. ”It’s difficult to know when the first loan will be made.”
SBA ”guidance” to lenders became available on Tuesday, he said, and he encouraged dealers to contact local lenders who likely already are qualified to make SBA loans and are familiar with SBA procedures.
”In recent months, we’ve seen a dramatic decrease in the availability of credit for financing dealership inventories,” SBA Administrator Karen G. Mills said in a press release. ”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.”
The new program allows RV, automotive and watercraft dealers to establish revolving lines of credit ranging from $500,000 to $2 million, with SBA guaranteeing 60-75% of the loan, depending on collateral. Loans are to be repaid within five years.
The floorplan loans are available under the SBA’s 7(a) program, which typically guarantees 90% of the amount. SBA decided on the lower percentage because of the newness of the program.
”Given that this is a pilot program, there is some question about how these loans will perform,” Zarnikow said. ”We concluded that a 75% guarantee would provide encouragement to lenders without taking undue risk.”
Because it is a pilot program that expires Sept. 30, 2010, there is a 4,000-loan limit this year and next “We don’t expect to see that volume, particularly in 2009,” Zarnikow said.
The SBA will decide next year whether to extend the pilot program beyond its expiration date.
It was hard for U.S. Rep. Joe Donnelly to contain his enthusiasm.
Something he and other Hoosiers, including fellow Democrat Sen. Evan Bayh, have been working on for months, became reality, according to the South Bend (Ind.) Tribune.
Beginning July 1, the U.S. Small Business Administration will offer government-guaranteed loans to finance inventory for eligible automobile, recreational vehicle, boat, motorcycle and manufactured housing dealerships. Donnelly, D-Ind., said the move is another piece to the puzzle that could get the cycle of business moving again in places like Elkhart County, part of which is located in Donnelly’s congressional district.
“This is very significant,” Donnelly said in a phone interview after attending Thursday’s announcement in Kokomo, Ind., by Karen Mills, SBA administrator.
“It’s not just RV related, but includes marine and manufactured housing. Those are three types of mainstay products in Elkhart County, and this covers every single one of those areas.
“It gives dealers a chance to finance floorplanning,” he added. “That enables the dealers to buy more products from manufacturers and for (manufacturers) to put more people back to work.”
For the past year and a half, many dealers had been unable to purchase cars and RVs to place on their lots, because the dealers themselves did not have the financing.
Organizations they had been getting loans from either refused to make loans as credit tightened, or simply walked away from the business.
“This ends the cycle,” Donnelly said, noting it allows more than 50% of the dealers to use the program. “We think this is a big step in putting people back to work.”
“The whole country starts buying again,” Donnelly said. “Since we do the manufacturing for all these products, all of that (business) will start to flow back into our community.”
Donnelly said Bayh greatly aided the effort. Donnelly himself had met with both Treasury Secretary Timothy Geithner and President Barack Obama about the problem, urging the SBA solution to guarantee the loans.
“I met with Geithner and explained the whole situation,” Donnelly said. “I had conversations with Obama last fall on the way to Elkhart and with him again last week.
“He has been very desirous to find a vehicle to create this financing.”
In a release, Bayh, who was also in Kokomo for Thursday’s announcement along with Ed Montgomery, director of recovery for auto communities and workers, said the program “will help keep open a business that might otherwise have closed.”
“Dealerships employ tens of thousands of Hoosiers and today’s announcement will both save jobs and create new ones,” Bayh said. “For a state like ours, with a proud manufacturing tradition, this announcement is truly a lifeline.”
Floor plan 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.
The Recreation Vehicle Industry Association (RVIA) called the program “a key victory on an important front.”
“RVIA has worked diligently over the past several months to have the SBA include floor plan loans in 7(a) loan guarantee program,” said RVIA President Richard Coon. “We are very pleased with the SBA announcement today and believe that the improved availability of credit for RV dealers through this program will benefit the entire industry.”
The program announced Thursday is considered a pilot program and will run from July 1 through Sept. 30, 2010, at which time the SBA will determine whether to extend the program.
The nominee to head the Small Business Administration promised today (April 1) to see what she can do provide loans to RV and car dealers to pay for their inventories.
The pledge from Karen Mills nudges the Obama administration’s position closer to what the RV and auto dealers have said is their top priority: easing credit so dealers can purchase the cars, trucks and RVs for their showroom floors, according to the Fort Wayne (Ind.) Journal Gazette.
Asked last week what was being done to help dealers get financing, Treasury Secretary Tim Geithner was less specific. “We’re working on it,” he told a Senate committee. “We think it would be helpful as a part of the overall solution, and I’d certainly be able to tell you and your colleagues in the next couple days what we think is possible, what’s not possible.”
One thing that should be possible, Sen. Evan Bayh, D-Ind., said at Mills’ confirmation hearing, is for dealers to be eligible for SBA loans to finance their inventories. Car and RV dealers must pay the manufacturers when they order a vehicle, not when it is sold. Dealers usually finance the inventory through the financial arm of their manufacturer or a bank. But with tightened credit, those loans have dried up. Under current rules, those vehicle inventory financing – called “floorplans” – are not eligible for SBA loans.
“These people are hurting. The president came to Elkhart wanting to help,” Bayh told Mills. “This is one way to provide real relief to these people.”
He asked if she would support making SBA loans eligible for purchasing inventory. Mills said she “would be very interested to look at that quickly and see what the possibilities are to help.”
Nearly half of all employees in the entire RV industry, which is centered in Elkhart County, have lost their jobs. Elkhart County’s 18% unemployment is the highest in the nation.
The auto dealers’ trade association has said that easing credit for stocking their dealerships is the most important issue facing the retail side of the car, truck and RV industries. John McEleney, chairman of the National Automobile Dealers Association, issued a statement that “vehicle inventory financing is the building block to automaker viability. It affects the entire auto retail network, domestic and international.” He said that finding a way to extend credit to dealerships “is essential not only to a healthy automotive industry, but to the overall economic recovery.”