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Banks are balking at SBA floorplan loans

MRAA asks for some changes in the program, while the NMMA urges dealers to 'educate' lenders


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 also acknowledge the program has some major 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 marine 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. "There is a natural mismatch of what an SBA loan does and any type of floorplan," says Wilkinson.

He says lenders are also reluctant to participate in the dealer floorplan program because it's unclear what the SBA expects and what is guaranteed. "This is not the time for banks to be taking an extraordinary risk," he says.

The SBA program allows boat, auto and RV dealers to apply for SBA-guaranteed floorplan financing so they can borrow against inventory and increase cash flow. Loans range from a minimum of $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 went into effect July 1 and runs through Sept. 30, 2010.


"SBA programs in general are difficult to navigate through," says Jim Coburn, president of the National Marine Bankers Association and president of Flagstar Bank. "It's always been that way. The application process is lengthy."

Keeter says it doesn't help that the guidelines, as written, are geared more to the business model of auto dealerships. If the guidelines aren't changed, he says, boat dealers might not qualify. "The government makes it so complicated nobody wants to mess with it," he says.

In late July, the MRAA 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, speaking in a July conference call with industry stakeholders. 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, a firm that 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.

A hard sell

The first step is finding an SBA-approved lender that will do floorplan financing for boat dealers. That in itself has proved difficult. "Because of the current economic environment, there will be no immediate entrance of a national floorplanner," Coburn says in a webinar posted on the NMBA Web site ( that focuses on establishing relationships with banks.

Instead, there will be "organic growth" through the development and participation of new lenders. "These new lenders will likely be small community, state or regional banks with service-specific market areas," Coburn says.

He says smaller, regionally focused national banks or savings and loan banks may be preferable because of their knowledge of local market conditions. Plus, they often provide more one-on-one access to loan officers and emphasize a borrower's character, rather than just applying a credit-score model.


Thompson says lending likely will come from sources dealers might not expect. He talked with an RV dealer who set up a line of credit with a small bank in Amish country. "I think you're going to find money in places you normally wouldn't look," he says.

Thompson and Coburn say the best place to start is a banker or lender you already know. Set up an appointment with a banker you have a good rapport with - who knows you and your company - and tell them you want to discuss business opportunities. However, don't jump right in with floorplan financing. The key is to get in the door first, then discuss specifics.

"Try not to use the F word," says Joe Lewis, owner and general manager of Mount Dora (Fla.) Boating Center. "They [bankers] have heard all kinds of horror stories about floorplan financing. Use the words 'inventory financing.' "

Lewis is working with his banker to set up a $2 million line of credit for his dealership. He says the relationship-building process began when Textron last year announced plans to quit the floorplan business - before the SBA program was approved - and he secured a $400,000 line of credit. After the SBA announced the floorplan program, Lewis found out this same bank is an SBA-approved lender, and he went back to apply for the $2 million line of credit.

"We're finding the program to be just a little cumbersome in its initial stages," Lewis says. "The only hurdle was they didn't like the fact that the program is temporary. But then I gave them a quote from Ronald Reagan: The closest thing you will ever see to eternal life in this world is a government program.

"We've got one foot in the door, and now we're trying to pry it open," he says.

Banks generally do not like the SBA paperwork, and they don't like floorplan financing, says Lewis. Plus, current guidelines require banks to have an existing floorplan program. Few regional or local banks have such programs in place because they have been handled by national banks during the last few years, says Lewis.

The bottom line, says Lewis, is that the SBA program is a hard sell, and dealers need to be prepared for that. "They need to persevere," he says. "It's just like selling anything these days. You're going to have to do a lot of fancy footwork."

Educate lenders

Thompson says dealers need to make banks comfortable with their businesses, the boatbuilders who supply their products and the marine industry in general. "You have to be able to present your financial statements, give them the history of your businesses - what you've done in the past three years and now," he says. "And you need to be able to prove to them you can live for a year in this environment."

Coburn says dealers should know what kind of financing they need and when they need it. "Consider not just what you need immediately, but services you may require some 18 or 24 months down the road," he says.

He says dealers also should be armed with a cache of facts about the marine industry, including the number of boats sold in their market, their region, and by their manufacturers, as well as the behavior of marine loans through the years. "Businesses and dealerships must continually educate new banks on the merits of floorplan financing and retail lending," says Coburn.

The NMBA has posted on its Web site a white paper written by Thompson, which provides a marine industry executive summary dealers can use to help educate bankers.

In his webinar, Coburn suggests inviting bankers to see dealerships in operation. "It's important to let them see it, smell it and touch it to get a real feel for what you're doing," he says. Also, "Engage your banker in the activity inside industry associations, trade meetings and even trade journals."

As important as it is to educate the banker about your business, Coburn says in his webinar that dealers need to be equally informed about the bank with which they're doing business. They need to do their homework on how the bank is structured, such as who heads up the SBA department. Investigate the bank's financial strength, senior management, loan officers and product experience. Determine your loan officer's or bank's local lending authority, and find out what the largest loan and loan types he or she can approve without checking with superiors.

"Do your due diligence, be persistent, and get to the right people - get past the gatekeeper," Coburn says.

In the end, he says, the SBA dealer floorplan program may not be for everyone. "But if it can reach a few dealers," Coburn says, "then we feel it can be a success."

This article originally appeared in the September 2009 issue.



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