SBA Dealer Floor Plan Financing Program Overview and Guidelines

The SBA Dealer Floor Plan Financing Program is a great option for businesses that need to finance their inventory. This program is designed to help dealerships and retailers manage their cash flow by financing their inventory.

The program allows dealers to borrow up to 90% of the value of their inventory, which can be a huge relief for businesses that need to maintain a large inventory.

Dealers can use the funds to purchase new inventory, pay off existing loans, or even expand their business operations.

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To be eligible for the SBA Dealer Floor Plan Financing Program, you must be a retail dealer of titleable inventory that requires licensing and/or registration by a State authority after acquisition.

Eligible inventory includes new and used automobiles, motorcycles, boats, boat trailers, recreational vehicles, and manufactured housing.

SBA size regulations apply to the program, including those pertaining to affiliation set out in 13 CFR Part 121.

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You can qualify for a floor plan line of credit using industry-based size standards, which are set forth in 13 CFR 121.201.

The alternative size standard established by the Small Business Jobs Act also applies, with a maximum tangible net worth of $15,000,000 and an average net income after Federal income taxes of $5,000,000.

SBA size regulations, including those pertaining to affiliation, are set out in 13 CFR part 121 and apply to the program.

The type of inventory you sell does not need to be licensed and/or registered in the State where it is sold, but it must be a type of inventory that could be licensed and/or registered in at least one State of the United States.

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The maximum interest rates for loans under the SBA Dealer Floor Plan Pilot Initiative are the same as those allowed under SBA regulations at 13 CFR 120.213-120.214 for the 7(a) program.

Lenders are allowed a maximum advance rate of 90% on new automobile inventory and 80% on all other inventory. However, lenders may establish an advance rate higher than this, but the maximum SBA guaranty will be limited accordingly.

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The maximum SBA guaranty will be no more than 75% of 90% for new automobile inventory or 75% of 80% for all other inventory financed by the lender. This means that if a lender has an advance rate of 100% for all inventory, the maximum SBA guaranty will be 67.5% for new automobile inventory and 60% for all other inventory.

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The SBA guaranty fee and the lender's annual servicing fee set forth in 13 CFR 120.220 apply to loans approved under the pilot initiative.

Lenders may charge borrowers the same fees allowed under SBA's 7(a) loan program with the exception of the extraordinary servicing fee.

For loans approved under the pilot initiative, SBA will allow lenders to charge an extraordinary servicing fee that is higher than the 2 percent allowed by Agency regulations.

This higher fee must be reasonable and prudent based on the level of extraordinary effort required to adequately service the floor plan line.

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Lenders who currently provide floor plan financing to their customers may not charge higher fees for their SBA-guaranteed floor plan lines of credit than they charge for their similarly-sized, non-SBA guaranteed floor plan lines of credit.

SBA's guaranty does not extend to extraordinary servicing fees, and at time of guaranty purchase, SBA will not pay any portion of such fees.

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Interest rates for loans under the Dealer Floor Plan Pilot Initiative are the same as those allowed under SBA regulations at 13 CFR 120.213-120.214 for the 7(a) program.

You can expect either a fixed or variable interest rate on your DFP line of credit.

The maximum interest rates for loans under the DFP Pilot are the same as those allowed by 13 CFR 120.213-120.214 for the standard 7(a) loan program.

This means you'll have a clear understanding of the interest rates you'll be paying, regardless of the type of loan you choose.

No matter which option you select, the interest rates will be consistent with the SBA's regulations for the 7(a) program.

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The SBA dealer floor plan financing program offers a maximum loan amount of $2 million, with a minimum of $500,000.

You can use the loan proceeds for the acquisition of titleable inventory for retail sales, to refinance existing floor plan lines of credit with another lender, or to replace existing floor plan lines of credit with the participating lender.

Repayment of these lines will occur as the acquired inventory is sold, with interest payment due monthly.

The loan repayment term is a maximum of five years, giving you time to manage your cash flow and grow your business.

The SBA will provide a 60-75 percent government guarantee, depending on the type of collateral and the lender's advance rate against the wholesale price of the inventory.

If you're interested in obtaining a DFP loan, you should contact your lender or your nearest SBA field office to get a list of SBA-approved lenders in your area who may be participating in the program.

The DFP pilot program is a new initiative that provides a guarantee for a specialized product, and the agency is working with and training lenders who may be interested in offering this type of financing.

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The SBA Dealer Floor Plan Financing Program has specific requirements for application and authorization.

To submit an application for guaranty under this pilot initiative, lenders must use the existing SBA forms applicable to the processing method, except for Less Experienced Floor Plan Lenders, who will continue to submit their floor plan applications to the LGPC for the life of the pilot.

Lenders will need to ensure that the application for a floor plan line of credit meets the requirements for delegated processing as well as the requirements specified in the Notice.

SBA will issue instructions for lenders on how to complete existing SBA application forms to include floor plan lines of credit.

Lenders with delegated authority may submit subsequent applications for DFP lines of credit using their delegated authority, but non-delegated lenders must submit subsequent applications to the LGPC after OCRM has approved their policies and procedures governing floor plan financing.

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SBA will provide instructions for lenders on how to complete existing SBA application forms to include floor plan lines of credit in the DFP Procedural Guide.

Lenders with delegated authority may use the Standard 7(a) Authorization Boilerplate or the Authorization for SBA Express and Patriot Express loans, but must ensure all applicable provisions related to floor plan financing are included in the Authorization.

Lenders will be required to service any floor plan line of credit guaranteed by SBA, and as any item of inventory acquired with the line is sold, the proceeds from the sale must be submitted to the lender to reduce the balance on the line.

Lenders participating in the DFP Pilot will be required to report quarterly on disbursement and collection activity on DFP lines of credit using SBA Form 1502R.

The SBA-approved lenders are responsible for making DFP loans to qualifying small businesses.

All SBA-approved lenders may make DFP loans, so dealerships have a wide range of options for finding a lender.

Lenders with more than $1 billion of floor plan lines of credit in their current portfolios may apply for delegated authority, which would expedite the lending process.

The SBA will also be available to provide guidance and support to lenders and borrowers throughout the process.

Regulatory Waivers are in place to allow participating lenders some flexibility in their dealings with SBA loan guaranties.

SBA loan guaranties made under the DFP Pilot may not be sold under Agency regulations at 13 CFR part 120, Subpart F—Secondary Market.

However, these guaranties can be included in participating lender financings or other conveyances, such as securitizations, participations, and pledges.

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All SBA lenders with an executed Loan Guaranty Agreement (SBA Form 750) may participate in the DFP Pilot. This means that lenders who have already established a relationship with the SBA can easily join the pilot program.

Any delegated authority a lender has as a 7(a) lender, such as Preferred Lender Program (PLP) or SBA Express authority, will not apply to the DFP Pilot. This is because the DFP Pilot has its own set of rules and requirements.

Lenders with at least $1 billion in floor plan lines of credit in their current portfolio may qualify for delegated authority under the DFP Pilot. This can expedite the lending process and make it easier to access the program.

To request delegated authority, lenders will need to follow the process outlined in the DFP Procedural Guide. This guide will be available on the SBA website.

Lenders with delegated authority must have existing policies and procedures governing floor plan financing, including risk management policies and procedures. They must also administer their SBA-guaranteed floor plan lines of credit in conformance with these policies and procedures.

Lenders who have not participated in floor plan financing must develop policies and procedures specific to floor plan financing, including risk management policies and procedures. They can follow guidance provided by their primary Federal regulator or the Office of the Comptroller of the Currency (OCC) in Section 210 of its Examiner's Handbook.

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SBA's Office of Credit Risk Management (OCRM) reviews lenders' policies and procedures specific to floor plan financing, including risk management policies and procedures.

The review process is triggered when a lender applies for the pilot initiative, and OCRM requests a copy of the lender's policies and procedures governing floor plan financing.

For lenders processing 15 loans under the pilot initiative, OCRM may conduct additional oversight, such as an off-site review of the lender's SBA-guaranteed floor plan portfolio.

Lenders participating in the pilot initiative must use prudent lending practices in making and servicing SBA-guaranteed floor plan lines of credit.

The SBA may provide further guidance on lender oversight and policies through notices published on its website.

OCRM reviews, evaluates, and approves the floor plan lending policies and procedures of each lender participating in the DFP Pilot, and the timing of the review is set forth in the DFP Procedural Guide.

OCRM follows its typical oversight practices, including off-site monitoring and on-site reviews, for lenders participating in the DFP Pilot, depending on the size and risk assessment of the lender's DFP portfolio.

The SBA waives certain regulations for loans made under the Dealer Floor Plan Pilot Initiative, including the prohibition on floor plan financing as an allowable use of proceeds, limits on extraordinary servicing fees, and classification as CAPLines loans.

The SBA dealer floor plan financing program allows lenders to finance inventory with a maximum advance rate. Lenders can set their own advance rate, but the maximum SBA guaranty will be capped.

For new automobile inventory, the maximum advance rate is 90%. This means that if a lender has an advance rate of 100%, the maximum SBA guaranty will be 67.5%.

Lenders can also establish a higher advance rate for all other inventory, but the maximum advance rate is 80%. The maximum SBA guaranty will be 60% if the lender has an advance rate of 100% for all inventory.

To ensure you have the necessary collateral, collateral must include a first perfected security interest in all titleable inventory acquired with any portion of the proceeds from the SBA-guaranteed floor plan line of credit.

If you have multiple floor plan lines for your business, you'll need to separately account for the inventory supported by each line. This means you'll need to track the sale proceeds of any inventory acquired with any portion of the floor plan line guaranteed by SBA and use them to directly reduce the balance on that line.

Dealers with multiple floor plan lines for multiple product lines, such as manufacturers or new/used, will need to have appropriate delineated inter-creditor agreements to enable proper security interest perfection.

Lenders are allowed a maximum advance rate of 90% on new automobile inventory and 80% on all other inventory.

The maximum SBA guaranty will be no more than 75% of the maximum advance rate, for example 67.5% for new automobile inventory if a lender has an advance rate of 100%.

Lenders may establish an advance rate higher than the maximum allowed, but the maximum SBA guaranty will be capped at 75% of the maximum allowed rate.

For new or used inventory, lenders are allowed a maximum advance rate of 100%, with a maximum SBA guaranty of 75% of the cost or industry based wholesale book value.

The maximum SBA guaranty for new inventory is 75% of 100% of the cost (manufacturer's invoice), and for used inventory it's 75% of 100% of the cost or industry based wholesale book value, whichever is less.

Lenders must identify the advance rate and calculate the maximum allowable guaranty percentage for each loan on the Lender's Application for Guaranty (SBA Form 4-I).

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In the context of the pilot initiative, lenders are required to provide specific documentation for guaranty purchase requests. This includes copies of floor check reports and monthly financial statements for the borrower.

Lenders will need to document the existing relationship with the borrower in the credit memorandum, which will be submitted to SBA as part of the guaranty purchase request. This is especially important for Less Experienced Floor Plan Lenders who may only approve lines to customers with a prior banking relationship.

The lender's policies and procedures specific to floor plan financing will be reviewed as part of the guaranty purchase review. Failure to comply with these policies and procedures may result in denial of the SBA guaranty on the loan.

Lenders will be required to review and comply with their own policies and procedures to avoid any issues with the guaranty purchase process. This ensures a smooth and efficient process for all parties involved.