House committee chairwoman criticizes SBA

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The SBA recently announced that it temporarily will allow auto dealers to useits 7(a) business loan program to finance vehicle inventory. Many lenderas had stopped makingthesd so-called floorplan loans to auto Rep. Nydia Velazquez, D-N.Y., who chairsa the House Small Business Committee, feards “there is a significantly higher risk of loan on these floorplan This could force the SBA to increasde the subsidy ratefor 7(a) which would make the loanxs costlier for future borrowers. In a June 2 letter to SBA administratofrKaren Mills, Velazquez noted the SBA had “lony prohibited the use of its financing programs for the purpose of wholesale lending, and for good reason.
Because lenders are limiteed in their ability to exercise full control over thefinanced items, the exposure to loss in floorplan loand is greater than in other types of Vehicles serve as collateral for floorplanj loans, and the value of this collateral “wil l depreciate rapidly” given the glut of inventoryh facing automakers in the wake of the bankruptchy reorganizations of and , Velazquez “While clearly there is a need to providee this industry with transitional assistance, doing so by focusingg on inherently risky financial arrangements seems she wrote.
“The potentially negativd impacts of this policu change are likely to extend well beyond the auto ButTony Wilkinson, president and CEO of the , said the floorplanh loans shouldn’t be any riskier than othe r types of 7(a) loans if lenders administer the loans “I think it’s appropriate for the SBA to look at everything they can do for all small businesses right now, given smalp businesses’ inability to access credit,” Wilkinsonm said. Velazquez also contended the time the agency spenyt on developing a complex new loan program shoulde have been spent on implementing overduse programs called for in the economicstimulus bill.
The floorplan loans will help onlya “very limitedc group” of small businesses, she noted. Had the SBA instead focusedx more on thestimulus “thousands of small businesses that can no longed wait for help wouldc have seen assistance,” Velazquez wrote.