The automotive social network for dealers and dealership management
Too Little, Too Late?
Today, President Obama today signed legislation that will
raise limits to $5 million on federally guaranteed loans available to
thousands of small auto dealers. Previously, the limit on the pilot program for the U.S. Small Business Administration was set at $2 million.
Over 18 months ago, we at Auto Dealer People and Auto Dealer Monthly lobbied hard for dealers to submit their own testimony for it to be submitted as part of dealers Bob and Mary Cockerham's testimony to the U.S. Senate. We were at first excited when it appeared that their efforts had been rewarded by the Senate to help give qualified dealers in dire need, the floor plan support they needed.
Over the last 18 months we learned that it was only a token victory as lenders have cited government red tape and fees, their own staffing constraints
and lack of familiarity with floorplan financing to turn a deaf ear towards dealers. Only 61 SBA-backed floor plans have been approved, and they total just $61M.
While I am hopeful, to me, with the critical November elections approaching, this seems more like a political ploy than anything that will appreciably help dealers. Whether $2M or $5M, you still have to have a willing lender.
What do you think?
raise limits to $5 million on federally guaranteed loans available to
thousands of small auto dealers. Previously, the limit on the pilot program for the U.S. Small Business Administration was set at $2 million.
Over 18 months ago, we at Auto Dealer People and Auto Dealer Monthly lobbied hard for dealers to submit their own testimony for it to be submitted as part of dealers Bob and Mary Cockerham's testimony to the U.S. Senate. We were at first excited when it appeared that their efforts had been rewarded by the Senate to help give qualified dealers in dire need, the floor plan support they needed.
Over the last 18 months we learned that it was only a token victory as lenders have cited government red tape and fees, their own staffing constraints
and lack of familiarity with floorplan financing to turn a deaf ear towards dealers. Only 61 SBA-backed floor plans have been approved, and they total just $61M.
While I am hopeful, to me, with the critical November elections approaching, this seems more like a political ploy than anything that will appreciably help dealers. Whether $2M or $5M, you still have to have a willing lender.
What do you think?
Replies to This Discussion
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Permalink Reply by Gene Daughtry on -
Of course, I have the feeling that our government has no idea what they are doing. They keep putting programs together that do not help the problem intended and they create more problems somewhere down the line. Cut regulations, lower taxes, repeal Obamacare and get out of the way. Then dealers will be able to make it on their own. Banks will go back to doing business that makes sense.
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Permalink Reply by David Ruggles on -
Gene,
I suspect letting the banks go back to what they were doing could also include Walls Street banks selling "insurance" products while establishing no reserves to pay claims, putting taxpayers back in the position of experiencing socialized risk and cost while the banks privatize their profits and fees.
I don't see how any of what you mentioned juices demand, the real current culprit.
When the ABS market melted down, taking with it 40% of our credit market, the big banks returned their TARP money quickly to prevent gov't oversight of their exec compensation, T&E, etc. This left them with strong looking balance sheets but little cash.
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Permalink Reply by Gene Daughtry on
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How what I said juices demand is by creating customers. If the economy returns to some level closer to a few years ago then there will be more folks working. Alot more folks working full time and even overtime. All these people will be carrying more money and feeling better about the future. When the consumers return to shopping the lenders will find ways to get the loans done. David your thinking about banks and I'm talking about private sector jobs. If the banks went back to selling insurance products and not establishing reserves they should lose the ability to sell insurance. The government had oversight when the meltdown took place, they just weren't exercising that oversight (SEC and porno ring a bell?). Now we have extreme restriction and it prevents banks from moving without regulation cutting into profits (this will get worse with the new CFPA). Until the government backs out of private business we will stay in this economy that's hovering just above collapse.
TARP and stimulis money should never have existed and banks returning it to prevent oversight on the scale they were about to experience was very smart.
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Permalink Reply by Becky Hillig on -
I don't think they needed to worry about raising the limit. But need to come up with terms for floorplanning. There is money out there, but with the rules the banks & credit unions have, they are not usable. We have found that floorplans in our area will only allow you to floor vehicles at average trade in price. Most vehicles at the auction are going $1,000 - $2,000 over that price. So every vehicle you purchase you have hard money in before they even hit the lot.
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Permalink Reply by Bob Bressi on -
I would never pursue ANY Government Backed or Supported Loans, I would close my store first. That is all they know how to do is spend money and they think that is what we do. They have no clue about being responsible. Most of us need no money at all, we need them to get out of the way so we can do business.
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Permalink Reply by Dan Smallhouse on -
The $2,000K limit was very much restrictive as it weeded out the large floorplan lenders such as Wells Fargo, Bank of America, U.S. Bank, M&T Bank, Fifth Third Bank, Chase, etc.. Most of the 61 submissions were from small community banks who were providing their dealers a floorplan line in order to keep their relationship solvent and to replace the carnage caused by the pullout of GMAC, Chrysler, Textron, and GE. Floorplan lending is a highly specialized type of lending which requires a lot of administration and maintenance. This administration and maintenance just does not pencil out for smaller lines/lenders and generally requires economies of scale, which the Bigger Banks enjoy. The community banks generally supplement the red ink from floorplan lending by wrapping up the borrower's whole banking relationship.
I am curious as to the lenders comment as to restrictive loan fees. The only loan fees charged by the SBA are for an annual servicing fee which the lender pays, 0.55%. This is fee is no different from the other loans a Lender may obtain throught the SBA, and it is generally figured into the loan rate spread the Lender charges the borrower. The borrower of course had the normal SBA guaranty fee waived with the advent of the ARRA 501/502 funding, which is a big save- up to $53,750 on a $2,000K loan. Lenders are able to charge their own inhouse floorplan maintenance/administration fees, but nothing any higher than what they currently charge their non SBA guaranteed Floorplan Borrowers, and that is usually dictated by the market.
The $5,000K limit is a step in the right direction and should help increase the availability of funds from established longtime floorplan lenders. In addition, it should help those dealers in need of purchasing or refinancing their facilities at a very attractive rate. Details on the increase should be forthcoming within a couple of weeks. So stay tuned
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Permalink Reply by A Jay Gould on -
Just another government program that won't work . I worked with a client,very solvent, thru a medium sized bank and we got nowhere. Finally he had to pledge his personal AND business assets along with a personal guarantee and the agreement still had many restrictive clauses. I would be willing to bet this is happening all over the country, many medium to small banks just don't understand our business. I can't imagine what an independant dealer is going thru.
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Permalink Reply by Dan Smallhouse on
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The SBA generally only requires the vehicles as collateral for their floorplan lines. Appears the lender mentioned was looking for more collateral in order to shore up their risk. Most experienced floorplan lenders will require a filing on all the business assets so any aftermarket items that are added to the vehicles are not pilfered if comes down to a default liquidation issue. And its pretty standard in the industry for the dealer principals to personally guarantee the floorplan line. The new program is expected to be even more in tune to industry standards and with the increased loan size, you will most likely see the big boys venture forth to partner with the SBA.
The SBA just announced a lessening of their size restrictions for new car dealerships. Is now 200 employees versus a cap of $29 million annual sales revenue. That opens the door to over 95% of the dealerships. Another appropiate and welcome change granted by the government after reviewing with industry lobbyests.
The program had its issues at first, but it is good to see changes for the good rather than the adverse are being implemented. Close to $100 million in loans were granted on the first go around, not a bad outcome for a 15 month period, and expectations are this number will perhaps double with the new program.
© 2013 Created by Greg Goebel.
