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15-month test flooring guarantees for Dealers
Dealers struggling to find flooring financing will get aid from the federal government through a pilot program being launched by the Small Business Administration.
Government loan guarantees for wholesale vehicle inventories will be offered to dealers in a test from July 1, 2009, through Sept. 30, 2010. The SBA said it may extend the initiative after the pilot ends.
"Countless small businesses, including dealerships across the country face significant challenges as a result of the uncertainty in the auto industry," said SBA Administrator Karen Mills in a statement. "Floorplan financing can offer some dealerships the opportunity to get through these tough economic times by allowing them to keep their inventory and cash flow intact."
Dealers use floorplan financing to borrow against their inventory, repaying the debt as they sell the vehicles.
The National Automobile Dealers Association has been meeting with the Obama administration and various federal agencies to find ways to loosen credit for dealers as U.S. auto sales have slumped to 27-year lows. Under the pilot program, a 75 percent government guarantee will be available on loans ranging from $500,000 to $2 million with a maximum repayment term of five years.
The SBA estimates it will be able to offer guarantees on 4,500 loans in the first three months of the pilot. In the following 12 months, if past patterns hold, it will be able to do about 7,500.
"This is a lifeline thrown out for thousands of dealers throughout the country," said Bob Cockerham, owner of Car World Kia in Santa Fe, N.M. "This could end up saving thousands of dealerships."
He and wife, Mary, testified earlier this year before a Senate subcommittee on the difficulty of getting floorplan loans.
John Lyboldt, NADA's vice president of dealership operations, said many banks have stopped inventory financing and others won't take on new dealerships. The lack of inventory financing has forced some dealerships to close.
"NADA hopes these loan guarantees will bring more lenders to the table to help unfreeze the dysfunctional credit market,'' said Bailey Wood, director of legislative affairs and communications.
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