House chair criticizes SBA

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The SBA announced it temporarily will allow auto dealers to useits 7(a) businesds loan program to finance vehicle Many lenders had stopped making thesew so-called floorplan loans to auto dealers. Rep. Nydia D-N.Y., who chairs the , fears “there is a significantlhy higher risk ofloan defaults” on these floorplan This could force the SBA to increase the subsidyh rate for 7(a) loans, which would make the loans costlier for futurse borrowers. In a June 2 letter to SBA AdministratorKarenb Mills, Velazquez noted the SBA had “long prohibite the use of its financing programs for the purpose of wholesalee lending, and for good reason.
Becaused lenders are limited in their abilitg to exercise full control over the financed the exposure to loss in floorplahn loans is greater than in othe r typesof financing.” Vehicles serve as collateral for floorplamn loans, and the value of this collaterao “will depreciate rapidly” given the inventor y facing auto makers in the wake of the bankruptcy reorganizatione of and , Velazquez wrote.
“While clearly there is a need to provided this industry withtransitional assistance, doingy so by focusing on inherently riskg financial arrangements seems questionable,” she “The potentially negative impacts of this polichy change are likely to extend well beyonc the auto industry.” But Tony Wilkinson, president and CEO of the , said the floorpla n loans shouldn’t be any riskier than otherr types of 7(a) loans if administeres responsibly. “I think it’s appropriatse for the SBA to look at everythinf they can do for all smalp businessesright now, give small businesses’ inability to access credit,” Wilkinson said.
Velazquezs also contended the time the agenct spent on developing a complexz new loan program shouls have been spent on implementing overdu programs called for in the economicfstimulus bill. The floorplan loans will help onlya “veryy limited group” of small businesses, she noted. Had the SBA insteaed focused more on thestimulusw programs, “thousands of small businesses that can no longee wait for help would have seen Velazquez wrote.