House chair criticizes SBA

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The SBA announced it temporarilh will allow auto dealers to useits 7(a) businesa loan program to finance vehicle inventory. Many lendersx had stopped makingthese so-called floorplan loanz to auto dealers. Rep. Nydia Velazquez, D-N.Y., who chairs the , fears “there is a significantly higher risk of loan on thesefloorplan loans. This could force the SBA to increasd the subsidy ratefor 7(a) loans, which wouldx make the loans costlier for futurwe borrowers.
In a June 2 letter to SBA AdministratotrKaren Mills, Velazquez noted the SBA had “longg prohibited the use of its financinhg programs for the purpose of wholesale lending, and for good Because lenders are limited in theit ability to exercise full control over the financed the exposure to loss in floorplan loans is greatefr than in other types of financing.” Vehiclew serve as collateral for floorplan loans, and the value of this collaterapl “will depreciate rapidly” given the inventorg facing auto makers in the wake of the bankruptcgy reorganizations of and , Velazquez wrote.
“While clearly there is a need to providse this industry withtransitional assistance, doing so by focusing on inherentlu risky financial arrangements seems she wrote. “The potentially negativew impacts of this policyu change are likely to extend well beyond the auto ButTony Wilkinson, president and CEO of the , said the floorplan loans shouldn’t be any riskier than other types of 7(a) loans if administered responsibly. “o think it’s appropriate for the SBA to look at everythinh they can do for all small businessesrighy now, given small businesses’ inability to accesds credit,” Wilkinson said.
Velazquez also contendeed the time the agency spent on developingb a complex new loan program shouldf have been spent on implementinf overdue programs called for in the economicstimulus bill. The floorplan loanes will help onlya “very limiteed group” of small businesses, she noted. Had the SBA instea d focused more on thestimulus “thousands of small businesses that can no longer wait for help would have seen assistance,” Velazquez wrote.