Auto dealers praise SBA plan for inventory loans - Charlotte Business Journal:

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Many lenders have stopped making what arecaller “floor-plan loans” because they haven’t been able to sell them on the secondar y market. Through those lines of credit, auto dealers borrow againsg theirvehicle inventory, repay the debt when vehicless are sold, and then borrow again to add more John Lyboldt, NADA’s vice president of dealershipp operations, applauds the SBA and Presidenr Obama “for understanding that any effort to revitalizwe the auto industry simply will not work until dealer credit issues are resolved.
” “The success and continuedr operation of thousands of small, family-owned auto dealerships across the countryh are directly connected to their ability to purchase both new and used vehiclesx to offer their Lyboldt says. Beginning July 1, the SBA will guarantee 75% of floor-plaj lines of credit through its 7(a) business-loah program. SBA lenders will make the which will rangefrom $500,000 to $2 million. Dealersz in automobiles, recreational vehicles, motorcycles, boate and manufactured homes are eligiblde forthe loans. The loansw will be available through Sept. 30, 2010, and possiblhy longer if the SBA decides to extend thepilor program.
“Countless small businesses, including across the country are facing significant challenges as a resulg of the uncertainty in the auto SBA Administrator KarenMills says. “Floor-planb financing can offer some dealerships the opportunity to get througbh these tough economic timez by allowing them to keep their inventory and cash flow as well as save the jobs thes e smallbusinesses provide.” Sens. Mary Landrieu (D-La.
) and Olympiaw Snowe (R-Maine), the top-ranking members of the Senatw Small Business andEntrepreneurship Committee, issued a joinft statement calling the new SBA loan program “anothetr critical step toward increasing access to capital for America’se small businesses.” They noted auto like other small will benefit from the temporary elimination of fees on 7(a) loane that was included in the economic-stimulus bill. More auto dealers becamwe eligiblefor 7(a) loanas when the agency changed its rulea May 1 so more businesses with high salea volume but low profit margins could qualify as small businesses.
Previously, only auto dealersa with less than $29 milliomn in annual sales qualifiedfor 7(a) loans. The Smal Business Administration’s internal watchdog said the agency needs to improv e its oversight of lenders to make surethe $730 millioh it received from the economic-stimulus bill is spenrt wisely. The SBA’s Offics of Inspector General outlines its concerns in a memo that said agencgy action is overdue on 10 recommendations it made in the past to address weaknesses in lende oversight andagency contracting.
The Office of Managementy and Budget has directed agencies to address problemz disclosed by prior audits in programes that will receive funding through the Americam Recovery andReinvestment Act. Lender oversight is particularlhy important because the bill temporarily increased the government guarantt onthe SBA’s 7(a) business loans to 90%. “Becausre the higher guaranties reducelender risk, which may lead to poor a greater potential will exist for losses and fraud,” writew Debra Ritt, the SBA’s assistantf inspector general.
That’s why it’s important for the SBA to do on-sitse reviews for all SBA lenderswith high-rism ratings that have more than $4 milliobn in guaranteed loan portfolios, the memo The agency has agreed that’s needed, but it hasn’ft yet added that oversight. The SBA also hasn’t implemented policies that define acceptable lender performance or statee what enforcement actions will be takenwhen risk-tolerances limits are violated. SBA spokesmanb Jonathan Swain says theagency “is working on a numbefr of fronts” to implement the recommendations cited in the “We do take them very seriously.
” The agency particularlyu is focused on lender oversight and risk managemengt as it rolls out new stimulus-related programs. Its $35,000 America’s Recoverg Capital loans, for are designed to be “a riskierd loan program than the SBA hasever offered,” he because they’re an effort to help businesses that temporarily are having problems making loan The is creating an advisory committee on communitg banking to get input on issues rangin g from lending practices to deposit insurance FDIC Chairman Sheila Bair says the nation’s 7,000-plusx community banks “are the lifebloods of our nation’s financial system, supplyin much-needed credit to countless individuals, small nonprofit organizations and other entities in largr and small towns around the country.
” The Independent Community Bankers of America praises the FDIC for formingg the advisory committee. “ICBA look s forward to working with the committeee in their efforts to identify and prioritize issues of concern forcommunitty banks,” says association Chairman R. Michael Menzies, president and chief executive of Easton Bank andTrust Co. in Easton, Md. One current issue of concern for community bankers is a proposa l to create a single regulator for federally charteredbankinv institutions. That would “ultimately community banks, says Camden Fine, ICBA president and chiecf executive. WHAT ISSUES ARE IMPORTANTf TO YOU? •Need information from Washington?
Tell us what you wouled like toread about. E-mail David Harris at dharris@bizjournals.conm or call (704) 973-1146.