Dealers and Business Credit

SBA Moves to Include Floorplan Loans in 7(a) Program

WASHINGTON, May 28, 2009 — After expanding eligibility for its 7(a) loan guarantee program in early May, the Small Business Administration on May 28 announced it’s launching a pilot program that will — for the first time — provide eligible dealers with government-backed lines of credit to finance their vehicle inventory.
    NADA praised the SBA for its efforts to expand its 7(a) loan guarantee program to include wholesale inventory, also known as floorplan loans, as many auto dealers are struggling to survive without access to credit. With the announcement, SBA has set aside an outdated prohibition on the use of 7(a) loan guarantees for floorplan financing.
    The pilot program begins July 1, 2009, and runs through September 30, 2010. At that time, SBA will consider extending it. The pilot program will provide a guarantee of up to 75 percent for as much as a $2 million loan for floorplan financing. Many smaller dealers are expected to work with lenders to take advantage of this for their new- and used-vehicle inventory.
    NADA continues to work with the Treasury, the Federal Reserve Board and the New York Fed to ensure that TALF funds may be extended to investors who wish to purchase floorplan asset-backed securities.
    For more information, click here. And for questions, contact Regulatory Affairs at (703) 821-7040 or email RegulatoryAffairs@nada.org.

Bob Cockerham, owner of Car World of New Mexico, testifies before the Senate Small Business Committee on the urgent need for increased dealer inventory financing. (March 19, 2009)

BACKGROUND: NADA Chairman John McEleney, members of NADA’s executive committee and senior staff, along with leaders from the National Association of Minority Automobile Dealers (NAMAD), met several times with SBA since Nov. 2008 to advocate a more inclusive size standard for dealers seeking access to the 7(a) loan program. These meetings led to the SBA action, discussed above.
 
In the American Recovery and Reinvestment Act (ARRA), enacted earlier this year, Congress raised the ceiling on 7(a) loan guarantees to 90 percent and reduced or eliminated borrower fees. This has prompted an increase of 25-plus percent in loan volume and sparked the return of hundreds of lenders to the market. Together, the ARRA and the SBA’s new size standard should enable more dealers to obtain working capital under the 7(a) loan program. 
 
Read more:

• Automotive News: When GMAC bailed, SBA loan saved Mont. store
• NADA Chairman Responds to Expansion of Eligibility for SBA Loan Guarantee Program
• SBA news release on temporarily expanding eligibility for its 7(a) loan guarantee program
• Senators to Obama: Expand Dealer, Consumer Access to Credit

Resources

SBA Floorplan Financing FAQs ( .pdf).

SBA Floorplan Financing Fact Sheet ( .pdf).

For Rep. Jeanne Shaheen's letter to President Obama, click here ( .pdf).

To read NADA's Policy Position, click here ( .pdf).

To read Cockerham's testimony, click here ( .pdf).

For more information on the SBA program, click here.

Return to nada.org/LegislativeAffairs