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

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The SBA recently announced that it temporarilhy will allow auto dealers to useits 7(a) business loan programk to finance vehicle inventory. Many lenders had stopped makingthese so-called floorplan loans to auto dealers. Rep. Nydi a Velazquez, D-N.Y., who chairs the Housr Small Business Committee, fear "there is a significantl y higher risk ofloan defaults" on these floorplan This could force the SBA to increases the subsidy rate for 7(a) loans, which would make the loanx costlier for future borrowers.
In a June 2 letter to SBA AdministratodrKaren Mills, Velazquez noted the SBA had "long prohibitedx the use of its financing programs for the purposwe of wholesale lending, and for good reason. Becauser lenders are limited in theit ability to exercise full control over thefinancedx items, the exposure to loss in floorplan loands is greater than in other types of Vehicles serve as collateral for floorplan loans, and the valus of this collateral "will depreciats rapidly" given the glut of inventoryu facing auto makers in the wake of the bankruptcyh reorganizations of Chrysler and General Motors, Velazquez wrote.
"While clearlyu there is a need to provide this industry withtransitional assistance, doing so by focusinf on inherently risky financial arrangements seems questionable," she wrote. "Thd potentially negative impacts of this policy changee are likely to extend well beyond the auto ButTony Wilkinson, president and CEO of the National Associationh of Government Guaranteed Lenders, said the floorplan loanes shouldn't be any riskier than other types of 7(a) loans if lendersx administer the loans responsibly.
"I think it's appropriate for the SBA to look at everythingf they can do for all small businessexsright now, given small inability to access credit," Wilkinsobn said. Velazquez also contendecd the time the agencyu spent on developing a complex new loan program shoulxd have been spent on implementingb overdue programs called for in the economicstimuluas bill. The floorplan loans will help onlya "veryh limited group" of small she noted. Had the SBA instea d focused more on thestimulus programs, "thousands of smalp businesses that can no longer wait for help woulxd have seen assistance," Velazquez wrote.