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.
The U.S. Small Business Administration (SBA) on July 1 rolled out a much-awaited pilot floorplan lending program designed to help recreational vehicle, automotive and boat dealers finance their inventories. The SBA’s action came after many dealers found their ability to finance floor inventories severely hampered after last fall’s collapse of global credit markets. Indeed, credit – or the lack thereof – has become one of the hottest topics in the recreational vehicle sector as it has throughout global business markets. The SBA’s new program allows RV, automotive and watercraft dealers to establish revolving lines of credit through 3,000 active, SBA-sanctioned banks ranging from $500,000 to $2 million, with the SBA guaranteeing 60% to 75% of the loan, depending on collateral. These floorplan loans, to be repaid within five years, are available under the SBA’s 7(a) program, which typically guarantees 90% of the amount. To further explore this new program, RVBusiness Senior Editor Bob Ashley recently interviewed Grady Hedgespeth, director of the SBA’s office of financial assistance.
RVB: So, how does this pilot program work? Do dealers apply directly to the SBA?
A dealer would not make an application directly to us. Most of the programs outside of disasters we guarantee are for loans that a lender would make. In that regard, this pilot is no different. A dealer would make the application to the lender and the lender would determine whether they are eligible conventionally or via SBA.
RVB: Is this a considerable departure from what the SBA ordinarily does?
This in many ways is a radical departure for us. For most of its lending history, SBA specialized in term loans with the philosophy that one of the toughest types of financing for small businesses is to get long-term fixed-rated financing. For most of our 40-some-year history of experience with loan programs, that’s what we did. It was only about 10 years ago that we actually started our first revolving loan program, and dealer programs are a type of revolving loan.
That was the CAPLine program, primarily for the financing of inventory where current inventory is put up as collateral. It’s different than floorplan financing because the collateral that backs the loan in a floorplan is actually the collateral you are trying to sell. In CAPLine, it’s the inventory that you already have in your possession that’s placed as collateral to get more inventory.
About five years ago we developed our SBA Express product that involves revolvers that allows for smaller working capital lines of credit, some of which may be revolvers. They are really for smaller dollar loans, under $150,000 to $350,000. Those two types of products were our most recent experiences with revolving lines of credit.
Importantly, because of the nature of revolving lines of credit and the risk, our maximum guarantee on those two products has only been 50%. That’s important because there have been some comments on the dealer floorplan program that the guarantee range is 60% to 75% and people are comparing that to the 90% that is now part of the Recovery Act.
So, compared to our standard revolving credit line product, the guarantee that we have for the dealer floorplan is quite generous.
Generally on the revolving lines of credit, we expect the lender to take on a fair amount of the risk. We actually think that we’ve improved upon on our typical revolving credit line product with what we are offering for dealer floorplans. We really provide an added incentive for lenders to consider prudently adding this particular product to help dealers who are facing a transition because of the current economic climate and downturn in sales.
RVB: How many lenders do you expect to participate in this program, and is there a list of current participating lenders available?
At this point, we do not have a list. Frankly, we are still looking for which lenders will participate. With any new SBA loan program, very frequently it takes four to six weeks for lenders to decide if they are going to participate.
Floorplanning is kind of a niche marketplace. Larger banks are much more efficient at accessing the secondary market and that makes it less attractive for regional banks to be in the floorplan business.
RVB: Will both large and small banks be involved?
That’s the interesting thing. I think it’s going to be the latter. We’ve really designed this initiative to empower regional banks to have an opportunity to look at their customer base and take dealers that they’ve known for years — and have had credit relationships with and may have lost their primarily floorplan line from the larger national players — and step in to provide the kind of floorplan they need for their transition.
We also wanted to encourage some of the players who do floorplanning on a more limited basis to see whether they wanted to expand their floorplan line to step in to fill the void left by some of the larger regional players who have exited the business.
RVB: We assume that banks have to qualify for this program?
The basic qualification is that they have to be an SBA lender. But we created basically two categories for lenders. One is for lenders who are less experienced with floorplans, which we define as those with less than $15 million of floorplan business on their books or that have been doing floorplans for less than five years.
For these less experienced lenders, we are putting just a couple of restrictions on the program. One, they have to send all of their loans to our loan processing center in Citrus Heights, Calif. It’s for their protection. We review their underwriting to make sure it meets standards that are prudent and reasonable. So when we give the OK on a loan like that, they don’t have to worry that if that loan goes bad that we will second-guess their underwriting.
A second important restriction for those less experienced banks is that we are limiting them to doing floorplanning with customers that they had before the pilot program took effect July 1. We want to empower them to work with customers they know – dealership owners with whom they might have previously had a working capital or real estate or wealth management program.
RVB: What about lenders who have floorplan experience?
For lenders who have been doing floorplanning, they can entertain new floorplan loans from any customer that they want. It doesn’t have to be an existing customer.
If they are a lender that has delegated lending authority from the SBA, their first loan has to come into Citrus Heights and we are going to ask for their policy on floorplan lending so that we have something to use if the loan goes bad to show that they did what they said they were going to do. But after the first loan, if they are a delegated lender, they’re free to use this program to entertain as many customers as they like.
RVB: Does this mean that dealers working with smaller lenders will be at a disadvantage because their loans will have to undergo extra SBA reviews?
No, we’ll get to know them pretty quickly and should be able to move their loans through our system quickly. We are going to give these loans a priority. We know the critical importance of these dealer floorplans loans. We are geared up to put it on an expedited track.
RVB: Is a small lender, a local bank, going to more than likely be an SBA lender already?
We have about 5,000 lenders out of 8,000 banks that have a Form 750 agreement with the SBA, which is the basic agreement between the banks and the SBA. Of that 5,000 or so, there are about 3,000 that are active. And because of the Recovery Act, 600 of those 3,000 have recently come back into active SBA lending.
There are a number of banks who may have done SBA loans years ago, but for one reason or another left the program who are taking a second look as a result of the incentives in the Recovery Act. We are hoping that this dealer floorplan program might be another incentive so that they will consider SBA again.
RVB: Do you have any sense of when this program will be getting underway?
No. I know we have had some active conversations going on with a couple of lenders, but they are intellectual ‘what ifs.’ They’ve got a dealer who has inquired informally and they are just asking if it’s likely that they would qualify. That’s a good indication for the first week of loan availability because that suggests to me that we’re going to start seeing applications begin to flow very shortly.
RVB: How this is going to split out between RV, automotive dealers and boat dealers?
I have absolutely no sense about that. I know we have a lot of business among our SBA lenders within industries covered by the major dealers types. The SBA has issued $1.125 billion of credit to these industry groups. That was another indication to us that our lending partners really do have an intimate knowledge of the credit worthiness of retail dealers of these types of assets.
RVB: We should point out that the maximum loan of $2 million is not a lot for an RV dealer. That could be 10 units.
Unfortunately, that’s a statutory restriction for the SBA right now.
RVB: Are you aware of the changes in the program that the Recreation Vehicle Dealers Association (RVDA) is promoting to make this program available to more dealers?
I’m not intimately familiar with their proposals, no. I will say this: We introduced a Federal Register notice with a 30-day comment period. Our key interest here was trying to get this to the marketplace just as soon as we possibly could. We think it met a lot of needs that we had to consider, such as prudence and compatibility with our existing SBA portfolio. But like anything else, it could probably be improved with a lot different eyes looking at it. So, we will be taking comments. There are some things we can’t do, such as raising the maximum limit on our maximum loans.
RVB: So, you can adjust this program as it goes forward?
Yes, we will consider adjustments. We have some constraints with the Office of Management and Budget that we have to meet. But we are open to suggestions. The other issue is that we will evaluate this pilot at the end to see whether or not it makes sense for it to be a more permanent part of the SBA portfolio.
RVB: And there’s a limit, we’re told, to the permissible number of loans?
There is a 10% limit on pilot programs in a fiscal year. This pilot program will straddle FY09 and FY10 so that would be 10% of the total volume in ’09 and 10% of the total volume in ’10. Right now we are running at about 50,000 (total) loans. I don’t think the cap is going to be a problem for this program in either ’09 or ’10 as well.
RVB: OK, then, what does all this mean to dealers?
I would encourage dealers to have a sound business plan. That is a key to communicating with their lenders. It’s also always good to start with people and institutions who know you, but that still may not guarantee that they are going to participate in floorplan lending. Interestingly, floorplans tend to be the best collateralized loans. It’s usually not just the inventory backing the loans, but very often real estate and personal guarantees of the owner. So as we look at the experience of major floorplan lenders, it’s the kind of thing that if you manage it well and you put in provisions that will allow lenders to do the extra servicing that is required of a floorplan, then this should be something that is an opportunity for moderate- and smaller-sized banks to step up to the plate.
Beginning in this month, eligible RV dealerships can apply for SBA-guaranteed dealer floorplan (DFP) financing under the Small Business Administration’s new DFP Pilot Program.
The Recreation Vehicle Dealers Association (RVDA) and its allies supported this type of program, which follows the establishment of new eligibility standards that will allow hundreds of more RV dealers to apply for loans under the SBA program, according to an RVDA news release. RVDA however, would like to see more incentives, and the elimination of certain disincentives, so that more banks get involved in the SBA loan guarantee program.
Several dealers tell RVDA that lenders are not jumping on board to participate in the floorplan program. RVDA will submit federal comments requesting further revisions and bank incentives.
The DFP program will provide loan guarantees for lines of credit through its 7(a) program through Sept. 30, 2010, at which time an extension of the program will be considered. DFP loans will be made through SBA lenders only for “titleable” inventory, including RVs, autos, manufactured homes, boats and motorcycles.
DFP loans will be available for a minimum of $500,000 up to $2 million. With a maximum repayment term of five years, the loans will come with a 75% SBA guarantee for the first 80% of the DFP loans. Borrowers will also benefit from the temporary elimination of fees on 7(a) loans made possible by the America’s Recovery and Reinvestment Act of 2009.
It is important to note that lenders may now establish a higher advance rate. Lenders can advance the entire wholesale price of the units floorplanned. However, the SBA maximum guaranty to the lender will only be 75% of an 80% loan.
For example, if a lender has an advance rate of 100% for all inventory, the maximum SBA guaranty will be 67.5% for new automobile inventory and 60% for RVs and all other inventory financed by the lender. The lender will need to identify the advance rate and calculate the maximum allowable guaranty percentage for each loan on the lender’s application for guaranty.
RVDA will provide more details on the program to members as they become available.
Visit the RVDA Lenders Toolbox at www.rvda.org for more information.
Is there a change afoot in the RV finance arena that perhaps reflects an overall prospect for improvement in the U.S. economy and the recreational vehicle marketplace?
That’s hard to say. Based solely on the fact that Bank of America Dealer Financial Services and GE Commercial Distribution Finance — the two big dogs in RV finance — are talking to the press lately after months of silence during the depths of the recession, it’s certainly beginning to look that way.
Ellsworth “Ellie” Clarke, president of B of A’s Dealer Financial Services, last week provided an overview of B of A’s programs and the RV market in an interview with Jeff Kurowski, director of industry relations for the Recreation Vehicle Dealers Association (RVDA), that was posted on RVBUSINESS.com. And only yesterday (July 1), GE Commercial Distribution Finance’s Pete K. Lannon, managing director and president of GE Capital’s Motorsports and RV Group, addressed modifications to GE curtailment policies in a wide-ranging interview with RV Business.
Lannon also fielded questions on an array of other related topics, the crux of which is as follows:
What can you tell us about finance rates in general? We’re told that they spiked for GE in March across the board – including both the RV and marine sectors. Do you anticipate any sort of an easing of interest rates?
There are a lot of factors that go into interest rates. Part of it is the macro-economic environment, the general cost of funds and what it takes to raise funds in the marketplace. Another component is our cost of operations, and then there’s a risk component. So, we’re attuned to all of these items, and we would make rate adjustments in accordance with what they are telling us.
The Small Business Administration is beginning to provide floorplan financing for RV retailers. Has this played into any of GE’s decision, announced yesterday, to moderate its curtailment interest rates?
I think it’s a little early to see exactly how it (SBA financing) is going to be implemented. The SBA is still concluding its regulations, formulations, etc. I think any additional (financing) capacity in the industry for dealers certainly is welcome, particularly for dealers that are challenged. We just need to see what the final formulation is from the SBA. It’s still somewhat uncertain.
We’re told that GE occupies about a 25-35% share of the RV marketplace’s wholesale financing. Is GE looking to increase that share?
We have a significant share. I’m not going to speculate as to the exact amount, but we know we’re a significant player in the industry. We look to increase business that makes sense, that’s profitable for both us and for our dealers. Whether that leads to market share or not … we’re still dealing with an industry that’s been heavily impacted, and I think most of us are thinking more about just getting to the right size versus getting into a market share ‘game’ at the moment.
‘Right size’ could be applied to the RV industry as a whole. Do you feel that there may in fact still be too many dealers, as some have argued, for a downsize market?
I don’t know about too many dealers… What we’ve got is a situation (where) there’s still an imbalance of inventory in the field to the sell-through at retail. I don’t speculate whether it’s too many dealers. I do know that there’s too many units available right now. It’s depressing the sales prices of the inventory dealers are holding, and there just aren’t enough customers willing or able to make the purchase at the dealer level. We need a better balance for the industry to get healthy again.
So, GE’s decision to eliminate the interest hike isn’t necessarily a reflection of the company’s more confident outlook on the state of the industry?
We do have a fairly confident outlook. Let’s put it this way: we’re ‘cautiously optimistic.’ At this point, I don’t know if we’ve found the bottom quite yet, but if we haven’t, we’re awfully close. We’re seeing some positive indications in our RV business with the way inventory levels have come down, and dealer performance metrics are improving. They’re not healthy yet – we’re not prepared to make that statement – but we’ve seen a couple of months of upward trends in some important performance metrics that indicate that we think we are near, or have found, the bottom.
If you want to take a step up and look across the entire economy, Jeff Immelt, GE’s chairman and CEO, was quoted in London today (June 30) on behalf of GE with an outlook that said, “things seem to be brightening.” Again, I don’t think anyone’s prepared to say that things are where they should be or that they are absolutely healthy, but I think overall in a lot of areas besides the RV industry we are seeing signs of improvement on a lot of different fronts.
Another leading finance provider is telling the industry right now that they are in it “for the long haul.” Is GE?
We are going to continue to invest in and support this industry. We’ve been a very long-term player in this industry. When you think about the predecessor companies that were acquired by GE, we go back in the RV industry at least to the late ’70s, and our intention is to make sure that we are here through this cycle and back when the industry is healthy again. We want to be a participant in that.
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.
For most of its history, the Federal Reserve has been a high temple of monetary matters, guiding the economy by setting interest rates but remaining aloof from the messy details of day-to-day business.
But the financial crisis has drastically changed the role of the Fed, forcing officials to get their fingernails a bit dirty, according to the New York Times.
Since March, when the Fed stepped in to fill the lending vacuum left by banks and Wall Street firms, officials have been dragged into murky battles over the creditworthiness of narrow-bore industries like recreational vehicles, rental cars, snowmobiles, recreational boats and farm equipment – far removed from the central bank’s expertise.
A growing number of economists worry that the Fed’s new role poses risks to taxpayers and to the Fed itself. If the Fed cannot extract itself quickly, they warn, the crucial task of allocating credit will become more political and less subject to rigorous economic analysis.
That could also undermine the Fed’s political independence and credibility as an institution that operates above the fray – concerns Fed officials acknowledge.
Executives and lobbyists now flock to the Fed, providing elaborate presentations on why their niche industry should be eligible for Fed financing or easier lending terms.
Hertz, the rental car company, enlisted Stuart E. Eizenstat, a top economic policy official under Presidents Bill Clinton and Jimmy Carter, to plead with both Fed and Treasury officials to relax the terms on refinancing rental car fleets.
Lawmakers from Indiana, home to dozens of RV manufacturers, have been pushing for similar help for the makers of campers, trailers and mobile homes.
And when recreational boat dealers and vacation time-share promoters complained that they had been shut out of the credit markets, Sen. Mel Martinez, a Republican from Florida, weighed in on their behalf with the Treasury secretary, Timothy F. Geithner, who promised he would take up the matter with the Fed.
“This is the most straightforward indicator of why we don’t want the government doing this, except in an emergency,” said Douglas J. Elliott, an economist at the Brookings Institution who supports the new lending program but worries about its long-term implications. “There is no clear line about who should be included and who shouldn’t be included. It’s an inherently political decision,” he added.
Big money is at stake. At issue is a joint venture of the Fed and the Treasury aimed at making more credit available. The program, known as the Term Asset-Backed Securities Loan Facility, or TALF, has bought about $27 billion in securities backed by credit card debt, car loans and student loans. In buying the securities, the Fed is providing the money that ultimately reaches businesses or consumers trying to borrow.
Despite a slow start, the program could soon expand broadly. This week, the Fed will add commercial real estate mortgages – a vast market – to the list of loans it will buy. Eventually, officials say, the TALF program could provide as much as $1 trillion in financing.
Fed officials say they, too, are uncomfortable with their new role and hope to end it as soon as credit markets return to normal. When R.V. manufacturers recently sought a meeting, senior Fed staff members refused to see them in person and instead heard their pleas in a conference call.
The central bank is increasingly having to make politically sensitive choices. For example, it is weighing whether loans to people who buy speedboats and snowmobiles are as worthy of help as those to people who buy cars. And it is being besieged by arguments from RV manufacturers and strip-mall developers that they play a crucial role in the economy and also deserve help.
Many of the decisions could have political repercussions. On Feb. 9, President Obama traveled to Elkhart, Ind., a Republican stronghold that Democrats hope to convert to their column. Elkhart is also home to much of the RV industry, which has been battered by the recession.
“When we talk about layoffs at companies like Monaco Coach and Keystone RV and Pilgrim International, we’re not just talking numbers,” Obama said, referring to three prominent RV companies. “We’re talking about people who’ve lost their livelihood and don’t know what will take its place.”
At the time, Fed and Treasury officials suggested that they would finance only car loans, credit card loans, student loans and Small Business Administration-guaranteed loans.
But the Recreation Vehicle Industry Association (RVIA) and Indiana lawmakers – among them, Rep. Joe Donnelly, a Democrat, and Rep. Mark Souder, a Republican – were already lobbying the Fed to include loans for recreational vehicles on its list of eligible collateral that the Fed would accept.
They were not alone. Rental car companies were pushing the Fed to finance their fleets. Hertz, which is owned by two private equity firms – the Carlyle Group and Clayton, Dubilier & Rice – hired Eizenstat to make its case.
In trying to persuade the Fed to relax its loan terms, Eizenstat led delegations of Hertz officials to both the Treasury and the Fed. They reached out to Ron Bloom, the co-chairman of the Treasury Department’s auto task force, as well as to top aides to Mr. Geithner. They also made detailed financial presentations to Fed officials in Washington and New York.
While the Fed so far has denied Hertz’s requests to relax loan terms, some of the lobbying appears to have worked. In March, the Fed announced that it would purchase loans used to buy light trucks and recreational vehicles. It also said that it would finance equipment leasing deals, rental car fleets and “floor plan” loans, which car and RV dealers use to finance showroom vehicles.
On May 17, the Fed refined its rules even more, saying that “recreational vehicles” included not just RVs but also boats, motorcycles and snowmobiles.
Fed officials said they had always intended to include those vehicles because they had long been financed through asset-backed securities of the type the loan facility was created to preserve. And the series of expansions, they said, did not reflect a capitulation to industry pleas. Rather, they simply announced additional details as policy decisions were reached.
Almost inevitably, industry groups are grumbling that the Fed’s terms favor some, like consumer car loans and credit card debt.
Mathew Dunn, a lobbyist for the National Marine Manufacturers Association, said collateral requirements for loans to recreational boat dealers are higher than those for securities backed by car loans.
That may soon change. In late May, the Small Business Administration said that it would open one of its main lending programs to RV dealers. Because the Fed has already agreed to finance SBA loans, it may not be long before it is financing boats, snowmobiles, motorcycles and campers.
President Obama’s car czar came to Kokomo, Ind., Thursday (May 28) to announce much needed aid for the state’s auto dealers. But the help is not just for auto dealers. It’s also for hard hit areas that manufacture RVs.
The Small Business Administration (SBA) and President Obama’s car czar announced a nationwide stimulus plan in the heart of Indiana’s auto industry, planting what they hope is a seed in the industry’s recovery, according to WTHR-TV, Indianapolis.
“We’re not giving up on manufacturing and I’m sure the president hasn’t given up on the auto industry,” said Ed Montgomery, director of recovery for auto communities and workers.
The SBA announced that it will back billions in government guaranteed loans to finance inventory for auto, RV, boat and other dealerships. The so-called floor plan financing starting July 1 gives dealers up to $2 million in much needed credit allowing business owners to borrow against inventory.
“These programs all will give dealers the breathing room that they need, the financing that they need to survive these times when sales are a bit down,” said Karen Mills, SBA administrator.
The federal and congressional delegation chose to announce the nationwide pilot program in Kokomo, where Chrysler’s biggest single work force is now coping with the automaker in bankruptcy. The government hopes the dealer financing will create a ripple effect in an industry that employs thousands of Indiana workers.
“Today’s announcement will help to preserve jobs in the auto dealers, auto manufacturers, the supply chain, small businessmen and women who supply the auto industry and in the recreational industry,” said Sen. Evan Bayh, D-Ind.
The new SBA program includes northern Indiana’s Elkhart County’s struggling recreational vehicle industry, accounting for a nearly 20% unemployment rate there.
“This is going to help dealerships be able to buy the products that the customers want to buy,” said Nathan Hart of the Recreation Vehicle Dealers Association (RVDA).
The National Automobile Dealers Association (NADA) and their members call the new stimulus plan a step in the right direction.
With automakers down-sizing dealers and with GM on the brink of bankruptcy, floorplan financing will likely do little to comfort thousands of Indiana auto workers wondering how long they’ll have a job.
One auto dealer said this week that access to credit is a major problem. The SBA said that the loans will allow dealership to keep their inventory and cash flow intact and save jobs.
A major announcement of new federal aid for RV dealers, the auto industry and small businesses will be announced today (May 28) in Kokomo, Ind., during a visit by Karen Mills, administrator of the Small Business Administration, and Ed Montgomery, President Obama’s director of Recovery for Auto Communities and Workers.
Mills and Montgomery, along with Sen. Evan Bayh, D-Ind., and Rep. Joe Donnelly, D-Ind., will meet with local officials, small business owners, labor officials, community leaders and workers to identify ways the federal government can cut through red tape and ensure that auto communities and small businesses are getting the resources they need quickly to bring relief to our workers and their families and revitalize our economy for the future, according to “Inside Indiana Business.”
The schedule calls for Mills and Montgomery to meet with Donnelly, the Kokomo mayor and other local officials at noon, followed by a 2 p.m. press conference to reveal the recovery efforts. The group is to meet with owners of small businesses at 3 p.m., according to a statement from the White House.
Sen. Evan Bayh, D-Ind., a member of the Senate Small Business Committee, Thursday (May 14) praised the Small Business Administration (SBA) for expanding the agency’s largest lending program, a decision that will expand access to capital for more than 70,000 additional American small businesses — including many RV and automobile dealerships across the country.
The SBA last week announced an expansion of its 7(a) loan program, effective next week through Sept. 30, 2010, according to a press release. The temporary 7(a) loan size standard will allow businesses to qualify based on net and average income. Under the new rules, a small business qualifies for SBA loan assistance if:
- The company and its affiliates have a net worth not exceeding $8.5 million and
- The company and its affiliates’ net income over the preceding two completed fiscal years does not exceed $3 million after federal income taxes (excluding any carry-over losses)
It is estimated that 50% of RV manufacturers and 75% of RV dealers will now qualify for loans under the SBA’s expanded criteria.
“To turn around our economy and help middle class Hoosiers make ends meet, we have to free up capital for small businesses, which are the primary engine of Indiana’s economic growth,” Bayh said. “This is a significant expansion of the largest federal loan program to help small businesses meet payroll and other operating costs. This move by the SBA will provide a lifeline to Indiana’s auto dealers, parts suppliers, and RV manufacturers and help thousands of middle class families who rely on these industries to make a living.”
“We’re encouraged that the SBA is expanding the definition of businesses that qualify for SBA loans to support investments in working capital, machinery and equipment,” said Richard Coon, president of the Recreation Vehicle Industry Association (RVIA). According to Coon, the direct consequence of the current credit squeeze for worthy companies has been lost jobs with RV manufacturers, suppliers and dealers.
“The new loan criteria couldn’t come at a more important time,” Coon added. “When coupled with an emergency rule being considered to permit 7(a) guarantees for dealer floor-plan inventory purchases, these new SBA changes will benefit a large segment of RV manufacturers, dealers and suppliers.”
Bayh continues to urge the SBA to expand the 7(a) loan program to include purchases of floorplan inventory, a change that would provide much-needed working capital for RV dealers and result in the retention of thousands of jobs nationally, including many in Indiana.
For more information about SBA’s revisions to its small business size standards, visit http://www.sba.gov/size/indexwhatsnew.html and click on “Small Business Size Standards.”
Editor’s Note: This is an updated version of an earlier story based on a news release from the Recreation Vehicle Industry Association.
With the nation’s credit freeze continuing to be the top challenge facing the RV industry, the Recreation Vehicle Industry Association (RVIA) and its industry partners have been working diligently on several fronts to expand the availability of credit to RV manufacturers, suppliers, and dealers. RVIA’s efforts gained momentum this week with the Small Business Administration (SBA) now considering waiving the floor plan lending prohibition that is currently part of its 7(a) loan guarantee program.
The SBA is considering plans to change current policy that precludes financing of RV floor plan loans through the 7(a) loan guarantee program. The SBA would temporarily permit floor plan lines of credit for assets which are “titleable” (RVs, cars, trailers, motorcycles, and boats). The specific timeline and parameters of the program are still being determined.
RVIA and its industry partners worked in March with Sens. Ron Wyden, D-Ore., Evan Bayh, D-Ind., and Jeff Merkley, D-Ore., to send a letter to the Acting SBA Administrator requesting a program change. Sen. Dick Lugar, R-Ind., and Rep. Peter De Fazio, D-Ore., sent letters on the same topic. In a March 31 response to Sen. Lugar, the SBA acknowledged that they were “reevaluating their policy precluding the financing of RV floor plan loans.” On April 1, Sen. Bayh asked a question on RV floor plan loans at the confirmation hearing of Karen Mills to head the SBA. Mills committed to quickly review the floor plan lending restrictions.
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. As a pilot program, it would need the approval of the Office of Management and Budget (OMB) as well as be subject to a 15-day review period by Congress.
This policy change would help improve the availability of credit for many RV dealers to purchase new inventory from manufacturers. A Federal Register Notice announcing the program is expected this month
The expected move to allow floor plan lending comes on the heels of the SBA expanding the eligibility for its 7(a) loan program, which allowed greater access to capital for more RV manufacturers, suppliers and dealers who now qualify as small businesses.
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.
President Obama said today (April 30) that the Small Business Administration (SBA) on Friday will announce “expanding eligibility” for loans to automotive suppliers and dealers, including “RV dealers.”
In a noontime speech while commenting on Chrysler Corp.’s impending bankruptcy, Obama said the federal government will provide independent finance company GMAC with the capital to supply retail and floorplan loans to Chrysler dealers and others.
“We will be providing additional capital to GMAC to help unlock our frozen credit markets and free up lending so that consumers can get auto loans and dealers can finance their inventories; a measure that will help stabilize not only the auto market, but the broader economy, as well,” the president said. “And tomorrow, the Small Business Administration will be announcing it is expanding eligibility for some loans to include more supplier and dealers, including RV dealers.”
The Associated Press reported that the president struck a populist tone during the speech while criticizing “a group of investment firms and hedge funds (who) decided to hold out for the prospect of an unjustified taxpayer-funded bailout” for Chrysler Corp.
“They were hoping that everybody else would make sacrifices, and they would have to make none,” he said. “Some demanded twice what they were getting. I don’t stand with them.
“I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers and the millions of Americans who own and want to buy Chrysler cars. I don’t stand with those who held out when everybody else is making sacrifices.”
The Recreation Vehicle Industry Association (RVIA) continues to work on all fronts in an effort to free up credit for RV dealers and consumers and help the industry recover from the current severe economic crisis.
Currently one focus of the association’s efforts is expanding the Small Business Administration’s (SBA) 7(a) lending program to benefit the RV industry, according to an RVIA release.
The SBA’s 7(a) loans are partially-guaranteed loans that are issued by a bank to a small businesses to support its operations. SBA recently raised guarantees for 7(a) loans from 75% to 90% and eliminated or cut borrower fees on these loans. While small businesses can currently secure up to $2 million under the 7(a) program for working capital, machinery and equipment, and in some cases debt financing, these monies cannot currently be used for dealer floorplan loans to purchase new inventory. Financing for floorplanning would provide much-needed working capital for RV dealers and would result in retention of thousands of jobs, RVIA contends.
At RVIA’s request, Sens. Ron Wyden, D-Ore., Evan Bayh , D-Ind., and Jeff Merkley, D-Ore., sent a joint letter to the SBA’s acting administrator asking for specific inclusions in the program that will help the RV industry. Sen. Richard Lugar, R-Ind., also sent a letter on the same topic to the SBA acting administrator.
The senators requested that RV dealer floor plan loans be included in SBA’s 7(a) guarantee program, saying, “The most helpful change in SBA policy would be to permit the financing of RV floorplan loans (for business inventory) as a temporary eligible activity through Dec. 11, 2011, in the 7(a) loan guarantee program.”
They also requested that the SBA temporarily adjust the standard for what it considers to be a “small” business. Currently the SBA considers small businesses to be companies with less than $7 million in gross earnings averaged over three years. The senators requested “that the SBA immediately change the small business definition for recreational vehicle dealers to allow increased RV dealership participation in the 7(a) loan program.” The senators also suggested SBA could change the definition of a small business to be one that employs 500 or fewer employees. Alternatively they suggested the SBA could “modify its definition to allow RV dealerships with up to $25 million in sales to participate, similar to the criteria for new car dealers.”
In arguing for the changes to the SBA program, the senators wrote, “During the Carter administration, automobile dealers sought and were granted an emergency rule through SBA that temporarily allowed dealers who sold fewer than 950 vehicles per year to qualify for SBA loans. The need for urgent action is as appropriate today as it was 30 years ago.”