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Signs of movement on the lending front

Two banks may enter floorplan field; dealer poll finds some relaxation of retail financing criteria

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Some shifts in marine lending may be on the horizon — welcome and unwelcome — in an industry that has seen little change since the early days of the recession.

Some new players might enter floorplan lending on a regional basis, which is hopeful news after the recession saw many major lenders abandon the sector. But a few small service companies are leaving marine lending, including those affected by the struggles of a European parent company.

Two commercial banks are considering the floorplan market, according to Jim Coburn, managing partner at Coburn and Associates LLC, a financial services consulting firm.

They’re some of the first banks to express an interest in the market since the industry lost several in 2008 and 2009, and the news is welcome, says Don Parkhurst, senior vice president of marine lending at SunTrust Bank. But the banks, situated in the Midwest, probably won’t enter anytime soon, Parkhurst says.

“They’re in the very early stages of getting geared up,” he says. “I think that’s encouraging that new players might be entering.”

Both likely will enter on a regional level instead of nationally, Coburn says.

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“My overall view is I don’t think there’s going to be entrance of a national floorplanner right away,” Coburn says.

Atlanta-based Community & Southern has been providing marine loans through correspondent lenders since August, according to John Redmond, director of specialized consumer lending.

Correspondent lenders originate direct, two-party consumer loans through referrals from yacht brokers, Redmond says. Service companies are outsourced indirect dealer F&I companies where loans originate on three-party contracts and are assigned to a lender, he says.

Some service companies that have European banks as parent companies are pulling back from marine lending, Parkhurst says. “If they didn’t have branches in the U.S., it’s difficult to find funding,” he says.

Some dealers have been looking to local banks and investors to help cover some of their floorplan financing, Coburn says.

With GE Capital the only large national marine floorplan lender remaining, some dealers say their terms have changed unfavorably.

But Coburn senses, at least anecdotally, that unless a dealer was in trouble, lenders have been working well with them to help them make curtailment payments and move inventory.

“What I noticed, through being so involved with the industry, is [that] the banks doing floorplans, unless the dealer was in real trouble, they really worked with them to relax those curtailments a little bit so they could have good cash flow and catch up when boats were sold,” Coburn says.

Dealers also have said since the recession began that they have had trouble securing loans for buyers.

“I’ve never seen the problem the same way some of the F&I guys at dealerships have seen it,” Coburn says. “We lost as many lenders as a percentage as we did boat sales. The analytic went down together.”

That caused interest rates to rise for people who didn’t have strong credit scores, Coburn says. It also changed how lenders looked at consumers’ overall collateral because boat values had plummeted so drastically.

The most recent quarterly poll done by the National Marine Bankers Association showed that for the first time since the recession, dealers thought the criteria had become more relaxed, though still tougher than before 2006, when lending criteria were “loose and fast and furious,” Coburn says.

Last year, SunTrust had its second-best year for marine loans in terms of volume, Parkhurst says. “We did see some tightening around down payments” in the overall industry, although SunTrust’s criteria have remained the same, he says.

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“If I had to point a finger at what is the biggest impediment in the marine world, it’s that many people who would like to buy and trade up are upside down on their current boat,” Parkhurst says. “There might have been a time that banks would look the other way and finance that into the new deal, and they’re not doing that anymore.”

“The real problem is nobody’s got any equity in their trades and that’s going to be the case for the next few years,” Parkhurst adds. “It’s the legacy of the recession that’s still out there and affecting marine sales. It’s nobody’s fault. It’s just like the drop in real estate causing lower home values is the recession’s legacy to the housing industry.”

This article originally appeared in the March 2012 issue.

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