SHAHEEN PRAISES SBA DECISION TO OFFER FLOOR PLAN FINANCING TO AUTO DEALERS
Shaheen led a bipartisan group of 32 Senate colleagues in calling on President Obama to make floor plan financing available through the SBAMay 28, 2009
(Manchester, NH) -U.S. Senator Jeanne Shaheen today applauded an announcement that the U.S. Small Business Administration that will offer government guaranteed loans to finance auto dealer inventory, a measure Shaheen has been fighting to change for months. In April, Shaheen led an effort in the U.S. Senate urging the SBA and the Obama Administration to increase auto dealers' access to credit. The SBA loans for Dealer Floor Plan (DFP) financing will be available beginning July 1st.
"New Hampshire auto dealers are facing serious challenges and great uncertainty," said Shaheen. "With thousands of jobs across the state supported by this industry, today's decision could not have come soon enough. We must to do everything we can to make sure this important industry to the Granite State's economy not only survives, but thrives."
In March, Senator Shaheen met with New Hampshire auto dealers in Dover to discuss what they needed to survive in this recession. Following that meeting, she led a bipartisan group of senators in calling on President Obama to authorize the SBA to guarantee loans to auto dealers for floor plan financing.
"In these difficult times for New Hampshire Auto Dealers, this decision comes as very welcome news," said Peter McNamara, President of the New Hampshire Automobile Dealers' Association. "Floor plan financing is the life-line for auto dealers, and will go a long way towards helping dealers secure the credit they need to survive. The New Hampshire Automobile Dealers' Association is greatly appreciative for all Senator Shaheen has done to help make today's decision a reality."
Shaheen and her colleagues efforts resulted in the recently announced temporary change to the size standard of the SBA 7(a) loan program. That effort has directly led to today's announcement, as the SBA will provide these new DFP loan guarantees through its expanded 7(a) program. According to the SBA, DFP loans will be made through SBA lenders only for titled inventory, including autos, RVs, manufactured homes, boats and motorcycles. The pilot program will begin July 1 and will be available through Sept. 30, 2010, at which time the SBA will review the program and determine if it will be extended.
DFP loans will be available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program. With a maximum repayment term of five years, the loans will come with a 75 percent government guarantee. Borrowers will also benefit from the temporary elimination of fees on 7(a) loans made possible by the American Recovery and Reinvestment Act of 2009.
The April 7 letter authored by Shaheen and co-signed by 31 of her Senate colleagues is below, followed by today's SBA press release announcing this change:
The full text of the letter follows:
April 7, 2009
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
The undersigned members of the United States Senate are writing to urge you to address the worsening credit crisis that is adversely affecting the entire automotive retailing industry in America. The restoration of all types of credit - retail loans, working capital loans, and wholesale inventory (or "floorplan") loans - is essential for the nation's automobile dealers. We urge you to implement the two policies outlined below as soon as possible.
The franchised dealer network is an extraordinarily powerful economic force on Main Streets throughout the United States. Together, the country's 19,000 new car and truck dealerships employ approximately 1 million people and account for upwards of 20 percent of the nation's retail spending. Individually, each of these dealerships generates direct economic investment in real estate and improvements, significant employee payroll/benefits, and substantial tax revenue for local and state governments. This stream of economic activity is based in large part on the dealer's willingness and ability to buy inventory from the automaker. Despite the entrepreneurial spirit of the dealer body, the viability of this model is stressed. More than 1000 dealerships have closed in the past year, at a cost of more than 50,000 jobs, and even more are facing a similar fate this year.
Credit is the lifeblood of the franchised dealer's economic model. Since more than 94 percent of vehicle deliveries are financed, adequate retail credit is essential. Additionally dealers, like many other businesses, need sufficient working capital to maintain cash flow. Finally and most critically, floorplan credit - the financing dealers use to buy vehicle inventory - is essential. A dealer losing access to floorplanning will close within a matter of days.
The degradation of the floorplan lending market is alarming. Within the past six months, the number of floorplan lenders has declined and the lenders still in the market are insisting upon terms and conditions that are not affordable for many dealers. This contraction of floorplan availability is threatening the future of many dealers. This problem is not limited to dealers with domestic nameplates and is not limited to any one region of the country.
In light of these circumstances, we urge your Administration to take prompt action to avoid further erosion of sales and employment in the auto retailing network. The following actions would restore access to credit in auto retailing, thereby stabilizing employment and economic activity in a sector essential to the overall health of the American economy:
1. Expand access to Small Business Administration (SBA) lending capacity for automobile dealers. In 1980, President Carter directed SBA to provide liquidity to the dealers to meet a similar credit crisis. The Administration has the statutory authority to expand the SBA size standard that today excludes many dealers. Also, the Administration has the statutory authority to allow SBA's guarantee to be used for floorplan loans that currently are ineligible under the program. An emergency directive implementing these two changes would increase access to credit for small business dealers all across the country.
2. Restore liquidity for auto floorplan lenders. The Federal Reserve should take appropriate steps to ensure that the Term Asset-Backed Securities Loan Facility (TALF) provides a workable program for financing floorplan loans. Although TALF presently covers securities backed by floorplan loans, TALF has yet to finance the purchase of any such securities since the program's inception.
In closing, we wish to emphasize the importance of this issue in communities throughout the nation. Your prompt action will provide positive economic results on Main Street.
Jeanne Shaheen (D-NH) Richard Shelby (R-AL) Chris Dodd (D-CT)
Olympia Snow (R-ME) Mary Landrieu (D-LA) Bob Corker (R-TN)
Jeff Bingaman (D-NM) Lamar Alexander (R-TN) Barbara Mikulski (D-MD)
Sam Brownback (R-KS) Chuck Schumer (D-NY) Kay Bailey Hutchison (R-TX)
Jim Webb (D-VA) Orrin Hatch (R-UT) Debbie Stabenow (D-MI)
John Cornyn (R-TX) Jon Tester (D-MT) Ron Wyden (D-OR)
Bill Nelson (D-FL) Kay Hagan (D-NC) John Kerry (D-MA)
Russ Feingold (D-WI) Bob Casey (D-PA) Tom Udall (D-NM)
Carl Levin (D-MI) Sheldon Whitehouse (D-RI) Evan Bayh (D-IN)
Sherrod Brown (D-OH) Jack Reed (D-RI) Max Baucus (D-MT)
Mark Pryor (D-AR) Ted Kennedy (D-MA)
Release Date: May 28, 2009
Contact: Hayley Matz (202) 205-6948
Release Number: 09-37
Internet Address: http://www.sba.gov/news
KOKOMO, IND. - The U.S. Small Business Administration will offer government guaranteed loans to finance inventory for eligible auto, recreational vehicle, boat and other dealerships under a new pilot program announced today by SBA Administrator Karen Mills.
Dealer Floor Plan (DFP) financing will be available beginning July 1, according to Mills. She announced the new program during a visit to Kokomo, Ind., with Dr. Ed Montgomery, President Barack Obama's Director of Recovery for Auto Communities and Workers.
"Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry," Mills said. "Floor plan 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, as well as save the jobs these small businesses provide."
Mills and Montgomery discussed the new DFP pilot program, as well as other resources offered by SBA and the federal government to help small businesses in communities impacted by the troubles facing the auto industry.
"Small businesses are the engine of our economic growth," Dr. Montgomery said. "We are committed to finding ways the federal government can cut through red tape and get resources to these companies quickly during these tough economic times. From supporting nearly $4 billion in lending to small businesses across the country since February to the Dealer Floor Plan financing announced today, the SBA is making the resources provided in the Recovery Act accessible and working to provided needed credit. The President is committed to continuing to work with federal officials to identify resources like these that make a real difference in the lives of our auto communities and workers."
Floor plan financing is a line of credit that allows dealers to borrow against their inventory, and then repay that debt as they sell their inventory or borrow against the line of credit again to add new inventory.
Under the DFP pilot program, the SBA will provide loan guarantees for lines of credit through its 7(a) program. DFP loans will be made through SBA lenders only for titled inventory, including autos, RVs, manufactured homes, boats and motorcycles. The pilot program will begin July 1 and will be available through Sept. 30, 2010, at which time the SBA will make the determination of whether or not to extend the program.
DFP loans will be available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program. With a maximum repayment term of five years, the loans will come with a 75 percent government guarantee. Borrowers will also benefit from the temporary elimination of fees on 7(a) loans made possible by the America's Recovery and Reinvestment Act of 2009.
During a roundtable discussion later in the afternoon with local small business owners Mills provided information on other SBA loan programs and benefits provided by the Recovery Act. Specifically, small business owners can take advantage of higher government guarantees on some 7(a) loans, as well as reduced fees on both 7(a) and 504 loans. The agency is also providing more tools to help small businesses compete for federal government contracts, along with technical assistance and counseling for business owners and entrepreneurs to help them deal with the economic challenges they face.
"We are committed to being the real partner small businesses need at this critical time," Mills said. "Floor plan financing is just the latest tool in our toolbox to help small businesses in communities like Kokomo weather this recession and drive our nation's economic recovery."
Press ContactBrent Carney
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