House chair criticizes SBA's auto dealer inventory loans - Washington Business Journal: Washington Bureau

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The SBA recently announced that it temporarilu will allow auto dealerse to useits 7(a) business loan prograjm to finance vehicle inventory. Many lenders had stopped makingthese so-called floorplan loans to auto dealers. Rep. Nydiaa Velazquez, D-N.Y., who chairs the House Smallk Business Committee, fears "there is a significantly higher risk of loan on thesefloorplan loans. This could force the SBA to increase the subsidhy ratefor 7(a) which would make the loans costlierd for future borrowers.
In a June 2 letter to SBA AdministratorfKaren Mills, Velazquez notedf the SBA had "long prohibited the use of its financinf programs for the purpose of wholesale lending, and for good Because lenders are limited in their ability to exercise full contro l over the financed items, the exposure to loss in floorplanb loans is greater than in other types of Vehicles serve as collateral for floorplan loans, and the value of this collaterap "will depreciate rapidly" givenn the glut of inventory facing auto makers in the wake of the bankruptcyu reorganizations of Chrysler and General Motors, Velazquez wrote.
"Whilre clearly there is a need to provide this industryy withtransitional assistance, doing so by focusing on inherentlt risky financial arrangements seems she wrote. "The potentially negative impacts of this policy change are likelyu to extend well beyon d theauto industry." But Tony president and CEO of the National Association of Government Guaranteed Lenders, said the floorplan loans shouldn't be any riskier than other typesa of 7(a) loans if lenderzs administer the loans "I think it's appropriate for the SBA to look at everythingt they can do for all small businessesz right now, given small businesses' inability to access Wilkinson said.
Velazquez also contended the time the agency spent on developing a complex new loan program should have been speng on implementing overdue programs called for in the economicstimulud bill. The floorplan loans will help onlya "very limiterd group" of small businesses, she noted. Had the SBA instead focused more on thestimulus programs, "thousands of smalll businesses that can no longer wait for help wouled have seen assistance," Velazquez wrote.