Industry leaders are hopeful the Small Business Administration’s dealer floorplan program can help resolve one of the biggest problems facing marine businesses, but they acknowledge the program has kinks that need to be worked out.
“We’re finding a real reluctance on the part of bankers to do this,” says Phil Keeter, president of the Marine Retailers Association of America.
Keeter and others point to two major factors behind the reluctance: complex guidelines set up by the SBA that don’t match the way the marine industry does business, and a lack of understanding on the part of lenders about the industry.
“SBA loans are typically term loans, such as buildings and permanent levels of working capital. Very rarely are they used for transactional lending,” says Tony Wilkinson, president of the National Association of Guaranteed Government Lenders.
Floorplans are transactional because they involve constant cash advances to finance inventory, then payback as it’s sold, then another advance to buy more inventory. This requires lenders to constantly monitor inventory levels.
The SBA program allows dealers to apply for SBA-guaranteed floorplan financing so they can borrow against inventory and increase cash flow. Loans range from $500,000 to $2 million under the SBA 7 (a) loan program. With a maximum repayment term of five years, the loans will come with a 60 to 75 percent government guarantee. The program runs through Sept. 30, 2010.
The MRAA has sent a letter to the SBA asking it to make the following changes:
• allow for application of the program in non-title and title states
• eliminate the $500,000 minimum loan amount
• increase the maximum loan amount to $4 million
• allow SBA loan proceeds to refinance existing or new inventory at the existing lender or for the acquisition or refinancing of inventory at a new lender
• expand the definition of franchise-only dealers, since that business model does not apply to recreational boating
• allow banks to be considered experienced on a case-by-case basis
• be less restrictive on the requirement that dealers provide monthly financial statements
“We’re still plugging away at it,” says Keeter, “and we still have high hopes for it.”
So does the National Marine Manufacturers Association, which worked closely with the retailers and marine bankers to convince the SBA to set up the program
“We really do feel the SBA program is a first step in improving access to credit for dealers,” says Cindy Squires, legislative counsel for the NMMA.
However, she says, dealers have to do their part to find lenders and educate them about the marine industry. “It is going to be a process of educating a lot of regional banks. It’s not going to be a matter of just flipping a switch,” she says.
That’s going to involve relationship-building on the part of dealers — something they haven’t had to do in a number of years, according to Bill Thompson, a former sales manager with KeyBank who earlier this year founded Cleveland-based Cardinal Points Network. The firm helps the marine and RV industries attract and manage commercial floorplan lenders. He’s trying to improve access to financing by building relationships among dealers, manufacturers and lenders.
“Over the last 15 years the industry became very comfortable,” Thompson says.
Wholesale lenders like KeyBank, Textron and GE knew the industry so well they were able to streamline the application process for dealers. The problem now, he says, is that dealers don’t know how to communicate with banks.
“You have to relearn the art of having a relationship with a bank and see on their terms what it takes to secure financing,” says Thompson.
For more on this issue, see the September issue of Soundings Trade Only