Phone: 630-495-2282 Fax: 630-495-2260 Map/Directions

Government-backed pilot program allows floor plan loans

November 15, 2010

By Ray Scarpelli Sr., Metro Chicago NADA Director

After a number of meetings between the NADA and the Obama administration in which NADA urged greater access to floor plan loans, the Small Business Administration (SBA) on May 28 announced it’s launching a pilot program that will, for the first time, provide eligible dealers with government-backed lines of credit to finance their vehicle inventory.

The NADA praised the SBA for its efforts to expand its 7(a) loan guarantee program to include wholesale inventory, also known as floor plan loans, as many auto dealers are struggling to survive without access to credit. With the announcement, the SBA set aside an outdated prohibition on the use of 7(a) loan guarantees for floor plan financing. The pilot program runs July 1, 2009, to Sept. 30, 2010. At that time, SBA will consider extending the program.

In early May, the SBA temporarily changed the business size standards to increase dealers’ eligibility for the 7(a) loan guarantees. The pilot program will provide a guarantee of up to 75 percent for as much as a $2 million loan for floor plan financing. Many smaller dealers are expected to work with lenders to take advantage of this for their new- and used-vehicle inventory.

In the past year, many banks have exited the inventory financing business and others are not willing to pick up new dealers, said the NADA’s John Lyboldt. In some cases, that forced dealerships to close their doors.

"The success and continued operation of thousands of small, family-owned auto dealerships across the country is directly connected to their ability to purchase both new and used vehicles to offer their customers," Lyboldt said.

The NADA continues to work with the Treasury, the Federal Reserve Board and the New York Fed to ensure that TALF funds may be extended to investors who wish to purchase floorplan asset-backed securities.

Questions on this matter can be directed to 

In late April, the NADA worked with the Chrysler National Dealer Council and GM National Dealer Council to help them set up bankruptcy assistance with two law firms. Any dealer affected by the bankruptcy may send an e-mail to or to request participation information or to submit other questions.

In other legislative and regulatory news . . .

• House Resolution 2743 seeks to restore the state franchise economic rights of GM and Chrysler dealers as they existed prior to each company’s bankruptcy.

The bill, whose short title is the Automobile Dealer Economic Rights Restoration Act of 2009, had attracted 77 co-sponsors in the House by June 11, three days after it was introduced by Rep. Daniel Maffei (D-New York).

Maffei said the automakers are buoyed by taxpayer dollars and should negotiate with dealers "in a way that will help to find a soft landing for the workers and communities."

The legislation was referred to the House Committee on Financial Services.

• A federal bill could broaden the FTC’s authority over dealers’ lending practices. H.R. 2309, the Consumer Credit and Debt Protection Act, could radically alter the authority of the Federal Trade Commission when it comes to making rules on consumer debt and credit.

The bill, introduced by Rep. Bobby Rush (D-Ill.), requires the FTC to (1) examine dealers’ credit and lending practices to prevent unfair and deceptive practices—even though the agency already has authority to address unfair and deceptive practices; (2) consider adopting rules that would restrict post-sale contract changes, mandate a "cooling off" period in purchase agreements (even for the sale of new vehicles at the dealership); and (3) limit dealers’ potential ability to compute their finance income as a percentage of the interest rate.

The law also would give the FTC civil penalty authority for consumer credit or debt practices it deems unfair or deceptive, and it would increase the enforcement remedies of state attorneys general. NADA staff is meeting with House Energy and Commerce staff to work out ways to increase consumer protection while not decreasing dealer viability.

• The FTC has again revised the enforcement deadline for its Red Flags rule. The new deadline is Aug. 1, pushed back from May 1. The delay gives financial institutions and creditors, including dealers, even more time to develop and implement written Identity Theft Prevention Programs (ITPP). (This revised deadline revision does not affect the deadline for compliance with the Address Discrepancy Rule, which was Nov. 1, 2008.)

The FTC also released a guide for low-risk entities, which may apply to some ATD members and commercial truck dealers. The guide can be found at For more info, visit