The assertion by President Obama that tight credit continues to make it impossible for small businesses to buy inventory, equipment or hire new workers comes as no surprise to boat dealers. We’ve been saying that for too long.
Finally, this week the House is slated to take up an administration-backed plan to push $30 billion into small community banks, a move that it believes will improve the credit crisis. Actually, the plan is not new. The president proposed it in his State of the Union speech last January. I suppose there was so much focus on health care reform that Congress couldn’t look at the recommendation. So much for multi-tasking!
The proposed $30 billion will come from left-over bank bailout funds. The idea is to make it available to small community banks with incentives for them to invest the funds via increased loans to local small businesses. With any luck, this plan may be more effective in motivating lending to the boating industry than any previous ones.
Hopefully, the House will move quickly and the Senate will follow shortly thereafter. Boat dealers and manufacturers need help in encouraging regional banks to create or re-establish floorplan lending, NMMA president Thom Dammrich told the Senate Committee on Small Business & Entrepreneurship last week. He noted the SBA’s Dealer Floorplan Financing Pilot Program (DFP) that began in July, 2009, hasn’t been very successful. One reason: It’s difficult to get a bank to develop a floorplan department when the program is only slated to last a year. A significant extension or, most desirable, making it a permanent program is needed to draw new lenders into floorplan development. To date, the current SBA program has guaranteed less than 100 dealers inventory loans.
“Although major banks and financial institutions have taken to running ads in major news outlets about their increased small business lending, the facts on the ground are quite different,” Dammrich told the committee. “Credit for our small business member companies — and particularly for the product dealers of our manufacturers — remains highly constricted.”
In addition to making the DFP permanent, Dammrich urged the elimination of the counter-productive restrictions on “Less Experienced Floorplan Lenders.” SBA currently limits lenders who have less than $15 million in floorplan credit in their current portfolio, or that have been doing floorplanning for less than five years, to making loans only to “customers with which [the lender] has a banking relationship that existed prior to the effective date of this pilot initiative.” This provision makes it extremely difficult for a dealer to find a new bank by severely limiting the available pool of lenders. They should be able to market floorplan loans to any willing and qualified customer.
Other recommendations included: (1) raising the loan limits from $2M to $5M; (2) making the DFP equitable among asset classes. Currently, SBA is allowing for a higher guarantee level for new autos than other inventory. “The mere fact that SBA has treated these inventory types differently has inadvertently sent the message to lenders that marine products are riskier than new auto products,” Dammrich insisted; and (3) SBA should increase the guarantee to 90 percent (or higher) for floorplan loans with a 100 percent advance rate. Floorplan loans need the same incentive given to other SBA 7(a) loans. After all, lenders will be asked to establish whole new marine lending programs and will need incentives.
Bottom line: To stand a chance of success, any new small business lending program must include incentives – a more favorable rate, for example — for community banks and lenders to utilize these monies for inventory financing.
Tell your Congress person.