The Obama Small Business Administration today promised to deploy yet another tool in its economic recovery "toolbox" to help beleaguered car dealers. Beginning in July, the SBA will allow its 7(a) program to back "floor plan" financing. Small-firm car dealers will be able to borrow up to $2 million to finance inventory; banks that make the loans will be able get a 75 percent government guaranty. Previously, 7(a) loans excluded this kind of inventory financing, which until recently was widely available elsewhere.
On top of that, more dealerships will be eligible for the loans, thanks to "alternate size standards" announced at the beginning of May that enlarge the definition of small. Though not specifically targeted at car dealers, Administration officials at the time were quick to point out that the temporary rules would double the number of dealers that could qualify for loans. The new Dealer Floor Plan pilot program is available to any seller of titled vehicles or vessels, including motorcycles, RVs, mobile homes, and boats.
Given the turmoil wracking the auto industry, and dealers in particular -- GM and Chrysler together hope to disenfranchise 15 percent of all new car sellers in America, while the used car business has lost about ten percent of its retailers in the last year -- today's announcement from the SBA makes good political sense. But it's pretty small bore: there are probably no more than about 90,000 such retailers, and many of them aren't small enough to qualify for the loans, even under the more generous size standards.
Meanwhile, a more pressing revolving credit crisis is brewing. Earlier this month, Advanta, which issues credit cards to small businesses, announced that it is closing all of its accounts on May 30th. According to Bloomberg.com, the issuer found at the end of the first quarter that it had to charge off 20 percent of its receivables portfolio -- double the charge-off rate reported at the end of 2008. Advanta is the eleventh-largest credit card issuer in the U.S., and it bills itself as one largest players in the small business market. With nearly one million accounts, it would appear to reach about five percent of all small businesses.
Now those borrowers will have to find other credit cards, if they don't already have them, and if they do, perhaps persuade those issuers to raise their credit limits. A company official told Bloomberg that "more than 90 percent of Advanta's small business customers will have 'adequate' access to alternative credit." But card issuers have been slashing credit lines since at least last fall -- good luck getting a new card or more credit now.
Now that the SBA has fully embraced revolving credit for inventory, is it time for the agency to enter the credit card market?