Dealer Pilot Floor Plan Goes Active After Initial Pilot

This week, the Small Business Administration will relaunch its Dealer Floor Plan Program, which was piloted in July 2009 for boat, auto, RV and other dealerships that use floorplan financing loans.

The new program, which will continue until Sept. 30, 2013, raises loan caps from $2 million to $5 million and provides a loan guarantee of 75 percent on floor plan lines of credit with a 100 percent advance rate.

"This new and improved SBA DFP Program will improve the flow of credit to the responsible marine businesses that really need it," said Thom Dammrich, president of the National Marine Manufacturers Association, in a statement. "We hope the program will attract a greater number and variety of lenders looking to create relationships with marine dealerships."

The majority of lenders servicing the industry left the marine market at the start of the economic downturn. Boat dealers had limited access or no access to critical business credit.

The NMMA has since worked closely with the SBA, House and Senate offices, and White House and Treasury Department officials to create, improve and enhance the floorplan program. Dammrich appeared before the Senate Small Business Committee last summer to urge that important changes be included.

As a result of these efforts, authorization for the relaunch of the program was included in the Small Business Jobs and Credit Act of 2010, which was signed into law last fall.

"Dealerships are a cornerstone of local business communities," said Marie Johns, SBA deputy administrator, in a statement. "As we continue to see our economy recover, the relaunch of this pilot provides another tool, alongside SBA's other programs, to help them succeed and create jobs in their local communities."

Program Details

On September 27, 2010, President Obama signed into law the Small Business Jobs Act which, among other things, established the SBA’s Dealer Floor Plan (DFP) Pilot Program. The DFP Pilot gives SBA the ability to issue 7(a) loan guaranties to revolving lines of credit made by qualified participating lenders that are provided to retail dealers of titleable inventory.

Key Features of the DFP Pilot:

DFP is structured to encourage SBA lenders to extend lines of credit to eligible dealers of new and used automobiles, motorcycles, boats (including boat trailers), recreational vehicles and manufactured housing (mobile homes).

Size Standards: The applicant can qualify for a DFP line of credit using either the traditional, industry-based size standards (set forth in 13 CFR 121.201) or the alternative size standard. Under the alternative size standard, SBA will classify a business as small if it, and its affiliates, have both a tangible net worth that does not exceed $15 million and an average net income after Federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years that does not exceed $5 million.

Minimum Loan Size of $500,000 and Maximum Loan Size of $5,000,000

Guarantee: SBA will guarantee 75% on floor plan lines of credit when the lender advances no more than 100% of the cost (invoiced) for new inventory and 100% of the cost or industry based wholesale book value, whichever is less, for used inventory.

Use of Proceeds: Loan proceeds may be used for the acquisition of titleable inventory for retail sales, to refinance existing floor plan lines of credit with another lender, or to refinance/replace existing floor plan lines of credit with the participating lender. Proceeds may also be used to pay the SBA guaranty fee.

Delegated Authority: A floor plan lender with at least $1 billion of floor plan lines of credit in its current portfolio may qualify for delegated authority under the DFP Pilot, which will expedite the loan approval process for small business owners and allows more autonomy for lenders.

Documentation: Delegated floor plan lenders will make use of SBA Express forms and therefore, be able to utilize to the maximum extent practicable their own policies, procedures, internal controls and documentation. Non-delegated lenders will follow standard 7(a) procedures, including the documentation requirements.

Guaranty Purchase: Lenders will be able to request purchase of the guaranty on a DFP line of credit in the event of a breach of a financial covenant, a sold out of trust (SOT) situation, or an unremedied adverse change.

Liquidation of the titleable inventory securing the DFP line of credit will be required prior to making demand on SBA but the lender will not be required to liquidate all additional business personal property securing the line prior to making demand.

Time Frame: The DFP Pilot will be implemented on or before February 9, 2011.