Recent Press Releases

Small Business Administration to Offer Loans to Auto Dealers

Senator Thune Urged SBA to Help Auto Dealers Through Credit Crisis

May 28, 2009

Washington, D.C. —  U.S. Senator John Thune applauded today's announcement by Small Business Administration (SBA) chief Karen Mills regarding low-interest loans that will be available to auto dealers. Last month, Senator Thune led a bipartisan group of his colleagues in urging the SBA to provide temporary low-interest floor plan financing that private lenders cannot provide during the credit slowdown.

"The credit crisis is having a significant impact on auto sales, which hurts dealers and their employees," said Thune. "The Small Business Administration is in a position to temporarily provide loans that would have previously been provided by floor plan lenders, which would help dealers save jobs and weather our current economic storm."

Auto dealerships depend on credit to maintain vehicle inventory, known as floor plan lending, and working capital. The number of private floor plan lenders has declined and the remaining lenders currently insist repayment on terms that many auto dealers cannot afford.

Senator Thune's letter called on the SBA to use existing business loans to provide floor plan financing to dealerships. Today the SBA announced that auto dealerships will now qualify for the loans that were previously unavailable.

The text of Senator Thune's original letter to Administrator Mills follows:

April 8, 2009

The Honorable Karen Mills
U.S. Small Business Administration
409 3rd Street, SW
Washington, DC 20416

Dear Administrator Mills:
Congratulations on your confirmation. I am writing today to respectfully request that the Small Businesses Administration (SBA) expand their lending capacity to automobile dealers by allowing SBA 7(a) loans to be used for floor plan financing and by adjusting dealership size standards. Due to the unique nature of the franchised automobile dealership model, credit is the lifeblood of their businesses and unfortunately, access to that credit has become extremely difficult to come by.

Specifically, since more than 94 percent of vehicle deliveries are financed, adequate retail credit is essential. Additionally dealers, like many other businesses, need sufficient working capital to maintain cash flow. Finally, and most critically, dealers need floor plan credit, the financing dealers use to buy vehicle inventory. In fact, it is so critical that a dealer who loses access to floor plan financing could be forced to close within a matter of days.

The degradation of the floor plan lending market is alarming. Within the past six months, the number of floor plan lenders has declined and the lenders still in the market are insisting upon terms and conditions that are not affordable for many dealers. This contraction of floor plan availability is threatening the future of many dealers. Perhaps most surprising is that this problem is not limited to dealers with domestic nameplates and is not limited to any one region of the country.

Currently, the SBA restricts the use of their business loans, including the 7(a) loan program, for a variety of purposes including floor plan financing. Additionally, the SBA defines a dealer to be a "small business" if its total annual sales are less than $29 million, but only about 25 percent of our nation's dealerships meet this standard. This is not because they are not in fact small businesses, but because the goods they sell, automobiles, are a high-ticket item.

The SBA currently has the statutory authority to remedy both of these problems. That is why I am respectfully requesting the SBA take immediate action to provide this much needed relief to these dealers, at least on a temporary basis. Thank you for your attention to this matter.


U.S. Senate