The federal government has re-launched its suspended floorplan financing program for small dealerships this week with loan limits increased to $5 million from the previous $2 million limit. Dealers were able to begin submitting loan applications for the federally-backed loans on Wednesday, February 9, 2011. A law enacted in September 2010 increased the loan limits and adopted a rule expanding eligibility for the program to the majority of dealerships.
Key Features: (Dealer Floor Plan – DFP)
- Size Standards: The applicant can qualify for a DFP line of credit using either the traditional, industry-based size standards (set forth in 13 CFR 121.201) or the alternative size standard. Under the alternative size standard, SBA will classify a business as small if it, and its affiliates, have both a tangible net worth that does not exceed $15 million and an average net income after Federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years that does not exceed $5 million.
- Minimum Loan Size of $500,000 and Maximum Loan Size of $5 million.
- Guarantee: SBA will guarantee 75% on floor plan lines of credit when the lender advances no more than 100% of the cost (invoice) for new inventory and 100% of the cost or industry based wholesale book value, whichever is less, for used inventory.
- Use of Proceeds: Loan proceeds may be used for the acquisition of titleable inventory for retail sales, to refinance existing floorplan lines of credit with another lender, or to refinance/replace existing floor plan lines of credit with the participating lender. Proceeds may also be used to pay the SBA guaranty fee.
- Documentation: Delegated floorplan lenders will make use of SBA Express forms and, therefore, be able to utilize, to the maximum extent practicable, their own policies, procedures, internal controls and documentation. Non-delegated lenders will follow the SBA’s “standard 7(a)” procedures, including the documentation requirements.
- Guaranty Purchase: Lenders will be able to request purchase of the guaranty on a DFP line of credit in the event of a breach of a financial covenant, a sold out-of-trust (SOT) situation, or an unremedied adverse change.
- Liquidation of the titleable inventory securing the DFP line of credit will be required prior to making demand on SBA but the lender will not be required to liquidate all additional business personal property securing the line prior to making demand.
Florida dealerships interested in obtaining a loan should contact one of the two local SBA offices in Florida: