Campaign Reminds Credit Unions Auto Dealers Are Welcome at SBA
The SBA has linked up with the National Automobile Dealers Association and the National Association of Minority Automobile Dealers for the motor vehicle dealer loan guaranty campaign targeting small new car and truck dealers regarding their eligibility for SBA 7(a) guaranteed loans. Small dealers detrimentally impacted by recent economic conditions particularly may benefit from the SBA 7(a) loan guaranty program, the agency said. The SBA guarantees loans made by local lenders for those applicants that cannot obtain credit on a conventional basis.
As of Sept. 30, 2008, the agency said it has approved 754 7(a) and 504 loans to new auto dealers totaling $315,454 and 2,294 loans to used auto dealers totaling $441,838.
"This is nothing new, this is the same [partnership] we've had for over two years with the motor vehicle industry," said David Hall, public affairs specialist at the SBA. "The only new thing is an agreement with NAFCU [and others] to remind people in the industry that these loans are available."
NAFCU has promoted the campaign on its Web site (www.nafcu.org).
"We are always looking for opportunities for credit unions to better position themselves and pick up market share in the current banking crisis," said Jay Morris, senior vice president of communications at NAFCU. "Among the areas where we've focused are mortgages, auto financing and SBA lending. We'll be talking about this more at our conferences, especially at our annual conference [in July]."
To be eligible to participate in the 7(a) loan program, dealers must have a need for SBA loan guarantee assistance and must be unable to secure conventional commercial financing on reasonable terms. The dealer must also be defined as a "small business," having total annual receipts are less than $29 million. The size standard for medium and heavy-duty truck dealers is 100 employees, according to SBA. Size standards may be increased by 25% ($36.25 million or 125 employees) if the applicant is located in or will use loan proceeds in an area of substantial unemployment, as designated by the U.S. Department of Labor. Approval of an SBA 7(a) guaranteed loan application will depend upon the availability of funds, an applicant's particulars, and the financial decisions of the participating lender and of SBA.
The 7(a) loans can be used as working capital and the refinancing of existing indebtedness. Proceeds may also be used to pay the guaranty fee. SBA guaranteed loan proceeds may not be used for inventory floor planning. The agency said financing a dealership total change in ownership is permissible if the aim is to preserve the dealership, promote its development, or contribute to the economy by making it easier for economically and socially disadvantaged persons to own dealerships.
SBA's 7(a) loan guaranty may not exceed the lesser of $1.5 million or 75% of the total loan. Generally, the maximum repayment period is seven years for working capital and 25 years for real estate and equipment. Interest rates are negotiated between the lender and the borrower, up to the applicable maximum allowable SBA interest rate and may be fixed or variable. Repayment terms may be arranged to suit the borrower.
Although no collateral or security is required by law, a borrower should expect to pledge whatever collateral is reasonably requested and to give such personal guaranties as may be required, the SBA said. The agency provides guidance to lenders on collateral adequacy.
Dealers may apply to any credit union, bank or other lender that handles SBA 7(a) guaranteed loans. A list of lenders participating in SBA's Preferred Lenders Program can be found on SBA's web site at http://www.sba.gov/services/financialassistance/7alenderprograms/plp/index.html.