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SBA To Finance Auto-Dealer Inventories Under Pilot Program

Posted by Internet Guru
May 29, 2009

The Small Business Administration will offer government-guaranteed loans to finance inventories for dealers of automobiles and similar big-ticket items.

The new pilot program is another step by the federal government to prop up businesses suffering from tight credit conditions and a recessionary economic environment. Dealers have been going out of business across the country as sales of cars and other vehicles have fallen off a cliff the past year. In addition, General Motors Corp. (GM) and Chrysler LLC – themselves both on government life support – have plans to cull weaker dealers from their networks.

“Countless small businesses, including dealerships, across the country are facing significant challenges as a result of the uncertainty in the auto industry,” said SBA Administrator Karen Mills. “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.”

The financing will also be available to dealers of recreational vehicles, boats and certain other items. The program, which begins July 1, will offer loans of $500,000 to $2 million, with repayment terms of up to five years. The loans will come with a 75% guarantee from Uncle Sam.

The U.S. Treasury Department had said earlier this month it was working on a program, to be administered by the SBA, that would provide loan guarantees to auto dealers. Jonathan Swain, an SBA assistant administrator, said at the time that expanding SBA guarantees to cover floorplan financing has been done once – under a directive by President Jimmy Carter during a similar crisis facing auto dealers in 1980.

-By Jay Miller, Dow Jones Newswires; 201-938-2331; jay.miller@dowjones.com

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