SBA loan program not a 'slam dunk'

MEDFORD — The Small Business Administration has unveiled a new government-guaranteed loan program to allow dealers to finance expanded selections of autos, recreational vehicles, motorcycles, boats and manufactured homes. One problem with the plan: Dealers don't seem interested.

The Dealer Floor Plan, which goes into affect July 1, would provide a revolving line of credit. It would allow dealers to borrow against their inventory, then repay that debt as they sell their inventory or borrow against the line of credit again to add new inventory.

That's the way many dealers operate in conjunction with manufacturers or other large lenders.

Frank Martin of D&S Harley-Davidson on South Pacific Highway said the manufacturer provides free flooring for 90 days to six months, then begins charging after that.

"It motivates us to sell," Martin admitted. "We still have an '08 sitting on the floor we bought and there are a couple of '90s we got early that we're paying flooring on."

Martin said he wasn't sure what advantage the SBA loans would provide.

"My first question would be: What's the interest rate and is there a monthly charge?" he said.

Jack Vitacco of the Small Business Development Center on Market Street in Medford said lenders can charge an SBA authorized base rate of up to prime-plus 2.25 percent interest.

"The lender knows exactly what is titled," Vitacco said. "When a car or other item is sold, the borrowers pay that back and then it can be reloaned for more inventory."

The SBA "flooring loans" will be available for a minimum of $500,000 to a maximum of $2 million.

The maximum repayment term is five years and the loans come with a 75 percent government guarantee.

Borrowers will benefit from the temporary elimination of fees on such loans due to provisions in the American Recovery and Reinvestment Act of 2009.

But the $2 million cap wouldn't go very far for auto dealers, said Warren Cooper of the Butler Auto Group.

"Typically, I see it as something that would be for smaller dealers," Cooper said. "I think the auto dealers around here are pretty much in good shape and wouldn't need it. We're pretty well-capitalized."

Likewise, Terry Dole of Water World Boating Center didn't think $2 million would be of much help if his Crater Lake Highway firm needed it.

"When you are dealing with larger products, it eats up $2 million pretty quick," Dole said. "I don't think it would help us any. Our flooring sources seem to have been strong and we haven't had any issues. Fortunately, we haven't needed anything different than what we have had for the past several years."

Martin, who has sold Harley's for 31 years, said rather than assisting with flooring costs, a more effective method of boosting business would be providing money for buyers.

"We've seen lower interest rates for businesses like AIG and Bank of America," Martin said. "It didn't effect us on the bottom end. Cutting my interest rates doesn't help people buy my vehicles. . . . What we need is for them to buy from us, so we can pay taxes and (consumers) have what they want and everybody is happy."

Martin said that kind of plan would have kept former employees on his payroll.

"We're minus seven people from where we were last year," Martin said. "Lowering interest doesn't help me bring them back, but providing them the money to buy from me would."

Vitacco said the program will benefit some businesses and points out that even used-vehicle dealers can apply for it.

I would think it will help somebody," Vitacco said. "But like everything else, it won't be a slam-dunk."

Reach reporter Greg Stiles at 776-4463 or e-mail

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