The Small Business Administration (SBA) has approved a Recreation Vehicle Dealers Association (RVDA) dealer member for an SBA-guaranteed Dealer Floor Plan (DFP) loan.
The SBA program, in effect since July 1, allows the agency’s guaranteed loan program to be used for RV floorplan loans (and other titleable inventory, including autos and boats) through SBA-approved lenders.
To RVDA’s knowledge, this is the first RV dealer approved to take part in the SBA DFP program, according to Brett Richardson, RVDA director of legal and regulatory affairs.
RVDA is working with industry allies on strategies to use with SBA and its lenders to make the program work for more dealers.
An SBA representative, Ed Brown, will be at the RV Dealers International Convention/Expo in Las Vegas and conducting a workshop on the DFP program on Oct. 7. For complete information on the SBA DFP program, click on the RV Lenders Toolbox at www.rvda.org.
The RV dealer, who asked not be identified, explained to RVDA the process the dealership went through to obtain the loan. The dealer was aware of the SBA program, and asked his regional bank to participate in the program. The dealer emphasized that the dealership was extremely pro-active with the bank. The process required the dealer’s constant encouragement to the bank to follow through with the program.
Two key elements for this dealer’s initial success are:
- The dealer’s regional bank already provided dealership floorplan loans.
- The dealer had an existing relationship with this bank. SBA defines existing relationships as deposits, lines of credit, etc.
The SBA application took the dealership about a week to fill out. The application included requirements such as an 18-month cash flow projection, three years of business financials and tax returns. The application also required a personal financial statement from the owner of the dealership and a background check.
Once the bank submitted the application, it took an additional two weeks for the SBA approval. Under the SBA DFP rules, it may take longer for approval if the bank is not already a dealer floorplan lender, since the application would need to be sent to the main SBA lending office, rather than just the regional office for approval.
The dealer reported that the requirements were not unreasonable. However, the dealership spent many hours preparing the application and invested just as many hours in discussions between the local bank branch and its regional headquarters. Without certain fee waivers granted under the new DFP program, the old SBA rules would have required a $50,000 fee to obtain the loan.
Based on comments from dealers and RV finance professionals, RVDA made several recommendations to SBA designed to make the program effective, including:
- SBA Must Loosen Restrictions on Eligible Lenders. SBA’s DFP initiative limits potential lenders under its “eligible lender” criteria, which require many potential new floor plan lenders to have an established business relationship with the dealer.
- Maximum Advance for RV Inventory Loans Should be Modified. The SBA set up a two-tier system for advance rates and guarantees by the agency. New automobiles gain the benefit of 90 percent advance rates with a 75% SBA Guarantee. However, the SBA classifies RVs along with used cars, and allows only an 80 percent advance with the 75% SBA guarantee.
- SBA Should Identify and Publish Participating Lenders. SBA could assist dealers and the RV industry by identifying lenders that are interested in making DFP loans.