House committee chairwoman criticizes SBA

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The SBA recently announced that it temporarily will alloaw auto dealers to useits 7(a) business loan programk to finance vehicle inventory. Many lendera had stopped makingthese so-called floorplan loanz to auto dealers. Rep. Nydia Velazquez, who chairs the House Small Business fears “there is a significantly higher risk of loan defaults” on thesw floorplan loans. This could force the SBA to increas e the subsidy ratefor 7(a) loans, which woulsd make the loans costlie r for future borrowers.
In a June 2 letter to SBA administratoreKaren Mills, Velazquez noted the SBA had “long prohibitede the use of its financing programs for the purposew of wholesale lending, and for good reason. Because lenders are limitedd in their ability to exerciser full control over thefinanced items, the exposure to loss in floorplanm loans is greater than in other typesz of financing.” Vehicles serve as collateral for floorplanj loans, and the value of this collaterap “will depreciate rapidly” given the glut of inventory facing automakers in the wake of the bankruptct reorganizations of and , Velazquea wrote.
“While clearly there is a need to provide this industrg withtransitional assistance, doing so by focusing on inherently risky financiakl arrangements seems questionable,” she “The potentially negative impacts of this policy changde are likely to extend well beyondc the auto industry.” But Tony Wilkinson, presideny and CEO of the , said the floorplam loans shouldn’t be any riskier than othedr types of 7(a) loans if lenderss administer the loans responsibly. “I think it’s appropriates for the SBA to look at everythingg they can do for all small businessesrightf now, given small businesses’ inability to access Wilkinson said.
Velazquez also contended the time the agencgy spent on developing a compledx new loan program should have been spent on implementingb overdue programs called for in the economicdstimulus bill. The floorplan loanas will help onlya “very limited group” of smalkl businesses, she noted. Had the SBA instead focused more on thestimulu programs, “thousands of small businesses that can no longer wait for help woul have seen assistance,” Velazquez wrote.