From MRAA, NMMA SBA, and our host agency, SBTDC resources: The Federal Small Business Administration has expanded its 504 Certified Development Company loan program to allow small businesses to refinance existing loans used to purchase real estate and other fixed assets. The changes were authorized in the American Recovery and Reinvestment Act of 2009. The SBA Dealer Floor Plan DFP is a pilot program that allows dealers to borrow against retail inventory and acts as a revolving line of credit for a dealer to obtain financing for retail goods. The dealer repays the debt as the inventory is sold and can borrow against the line of credit to add new inventory.
These permanent changes will allow small businesses to restructure eligible debt to help improve their cash flow which, in turn, will enhance their viability and support growth and job creation. The SBA 504 loan program can be used to purchase business real estate or fixed assets, such as heavy equipment or machinery.
Background on DFP and TALF (Term Asset-Backed Securities Lending Facility)
NMMA Economic Relief Initiative information
SBA DFP Frequently Asked Questions for Borrowers and Lenders
National Marine Bankers Association (NMBA) continues work on problem (Boating Industry news item)
NMBA create "101" webinar to assist boating industry find and develop loan sources
DFP loans are available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program, with a maximum repayment term of five years. Borrowers also benefit from the temporary elimination of fees on 7(a) loans made possible by the American Recovery and Reinvestment Act of 2009. DFP loans guarantees will be from 60-75 percent, depending on the type of collateral and the lenders advance rate against the wholesale price of the inventory. Lenders may advance up to 100 percent of the wholesale price.
The Reality
It takes banks with money to loan and the willingness to loan against titleable assets like boats and trailers to complete the process of these SBA-backed loans. Even though it is a good program for both borrower and bank, the bank has to be comfortable with the asset value of the boats and trailers against which the loans are made. And this is usually the “Catch 22” in that boat values and a country-wide appreciation for the value of the boats in question are not easily agreed to by lender and borrower. The lender has extensive capital at-risk as these loans must be held on the bank or lender’s book, and the borrower has more money in the assets than the bank is likely to lend.
What to do
The real answer is to understand what you have, the collateral of your particular assets including the boats, and to “work” your bankers – the ones you have done business with and who know your business – if at all possible. If not, use your own network of like-boat sales businesses and manufacturers to track down potential lenders – they don’t have to be from your state. The National Marine Bankers Association created a very informative 15 minute Webinar as noted above. Take the time.
The Small Business Administration (SBA) has posted an online instruction document and checklist for businesses wishing to apply for dealer floor plan loans. The document offers businesses a step-by-step guide to applying for a DFP loan through SBA’s pilot program, which launched on July 1. While the application process should be done with a loan officer at a participating lender, the instructions give interested applicants a helpful review of what the application will require. To learn more, visit www.sba.gov/floorplanfinancing .