Government Guarantees Up To 75% of Loans
Move Is Expected To Free Up Money for Dealers
July 1, 2009— The Small Business Administration (SBA) today launched its pilot program designed to increase dealer access to floor plan financing. Details were provided this morning in a conference call with news media representatives and SBA staffers.
As many as 4,000 loans could be guaranteed under the program that runs through Sept. 30, 2010, said Eric Zarnikow in response to one of my questions. Zarnikow, the SBA’s associate administrator for capital access, said the agency is limited to backing only 10% of the total number of loans it makes under its 7(a) program, which would be about 4,000 at the current rate of processing.
The SBA will evaluate the program next year and determine whether or not it should be retained or dropped. “We’ll determine what to do at that time,” said Zarnikow.
Floor plan loans will be available for a minimum of $500,000 up to $2 million under the pilot program—dubbed by the SBA as its DFP (for Dealer Floor Plan). The loans will have a maximum repayment term of five years.
The loans will be made by local banks to dealerships, not by the federal government, but the government will guarantee a portion ofthe loan. The government will guarantee up to 75% of the loan.
Loans are asset-based; dealers must pledge vehicle inventory for the loan. As vehicles are sold and the dealer repays the loan, he can apply for additional financing on the new inventory that he purchases. Loans can only be made for inventory that can be titled.
Dealers who have not worked with the SBA should remember to:
- Prepare a business plan before you seek a loan.
- Start with a local bank, even if you haven’t established a lending relationship there.
- Make use of the resources available through your local SBA office. Visit the SBA website to find out more about these resources, especially the SBA’s partners program.
Working with the SBA on the floor plan lending program is not a simple task for bankers, said Zarnikow. Bankers should be prepared to:
- Put into place policies and procedures for floor plan lending.
- Dedicate sufficient staff to monitor these loans. Floor plan loans require “a fair amount” of monitoring, Zarnikow said, to check the inventory as it turns over.
- Treat the DFP loans the same as they do other floor plan loans.
The SBA is developing a training program for bankers to ensure they know how to work with dealers and to process and administer floor plan loans under the new program.
For more Details on the floor planning program, visit the SBA site.
For more information on ways to work with the SBA and the resources that are available to you as a small business owner, check out the resources section of the SBA website at sba.gov. JD
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