Yogi Berra once said: “It ain’t over till it’s over!” If he was saying that today, he might be referring to the SBA’s 7(a) dealer floorplan program (DFP). Yes, it’s been a bust to date, but it ain’t over . . . at least not to groups like the auto dealers (NADA), RV dealers (RVDA), RV manufacturers (RVIA), boat dealers (MRAA), manufacturers (NMMA), among others.NADA has taken the point in pursuit of major improvements to the DFP program that could make it work for retailers. To better understand why the DFP isn’t working, NADA commissioned a survey of 40 current and prospective floor plan lenders specifically to determine: (1) if they reviewed the DFP and decided not to participate; (2) if something in the DFP is keeping them from participating; and (3) if the DFP could be changed to entice them to participate.
One thing the survey didn’t need to learn was that lenders participating in the DFP are as hard to find these days as an effective Congressman. Even banks accustomed to doing SBA loans haven’t delivered. For example, according to a review recently done by the St. Petersburg Times, Bank of America, long the top SBA 7(a) lender in South Florida, is a mere shadow of its former self making just $3 million in such loans last fiscal year, down a whopping 86 percent over the prior year.
Clearly, if the SBA is to really deliver on its claim to help small businesses, the DFP must be radically improved with incentives. A major strategy planning meeting that includes MRAA and NMMA will be hosted by NADA. To see these and other organizations forming a coalition to powerfully influence the changes needed to make the 7(a) program work is a welcomed development.
As the groups prepare to meet, the NADA has identified from the survey a variety of changes immediately needed and has sent them on to SBA. Here are highlights:
1. Support an increase in the maximum loan amount from $2 to $5-10 million. (As Yogi once said: “A nickel ain’t worth a dime anymore!”)?
2. Lower the minimum loan amount from $500,000 to $100,000. ?
3. Allow both depository and non-depository institutions to participate if they are “experienced,” or if they are “less experienced,” but can demonstrate a reasonable ability to do so, even with no existing business relationship with an applicant. ?
4. Allow loan advances up to 100 percent of wholesale value for either the purchase of additional inventory or to refinance an existing floor plan line.
5. Raise the maximum guarantee from the variable 60-75 percent to a flat 90 percent and support an extension of the 90 percent ARRA guarantee. ?
6. Extend the DFP program beyond 9/30/10 to three years or more; perhaps even permanently.
7. Allow DFP applicants to apply for separate individual lines with separate guarantees subject to a reasonable total cap amount
8. Recognize the degree to which lenders outsource floor plan software and servicing and reduce or adjust in-house lender qualifications commensurately.
9. Allow all lenders to charge above the 2 percent cap on extraordinary servicing cap fees and continue to waive SBA borrower fees.
10. Allow DFP loans to be eligible for securitization just as other 7(a) loans are.
11. Reduce or eliminate to the greatest extent possible any “onerous” lender requirements associated with making SBA 7(a) loans. ?
12. Increase and improve DFP marketing to lenders, dealers, SBA personnel, and other interested parties by leveraging trade association outreach, by contacting all SBA and floor plan lenders directly, and by having local SBA personnel meet with the lenders in their area, and maintain a database of floor plan lenders willing to take new applications.
For SBA, now is the time to act on input like this. For us, remember what Yogi said.