The U.S. Small Business Administration is launching a pilot program July 1 that’s aimed at helping boat dealers caught in the nationwide credit crunch.

The SBA will be offering Dealer Floor Plan loans, or “DFP loans,” for boat and other types of dealerships. The loans allow boat dealers to borrow against their existing inventory to buy additional stock. As that inventory is sold, the dealer repays the debt and can then borrow against the line of credit again.

The loans, which must be repaid within five years, will be available for between $500,000 and $2 million and come with a 75 percent government guarantee. DFP loans will be available only for titleable inventory such as boats and boat trailers.

Boat dealers locally and nationwide have been devastated by lower consumer demand and restricted credit caused by the subprime lending crisis. Lenders including Textron Financial, Wachovia and others have gotten out of marine lending over the past year, and the few remaining lenders have scaled back lending and increased fees. The downturn has led to the closure of numerous dealerships in the Seattle area, including Passage Maker Yachts and Olympic Boat Centers.

The SBA pilot was welcome news to the National Marine Manufacturers Association, which has lobbied the federal government for additional sources of financing for boat dealers and manufacturers.

“I really applaud (the SBA) for putting out this pilot project,” said Cindy Squires, the NMMA’s chief counsel of public affairs and director of regulatory affairs.

“We were very pleased to see that they included us in their program. Given the change in credit terms for everybody, suddenly this became very important.”

The success of the pilot program, scheduled to run through September 2010, relies largely on the willingness of banks to participate. Commercial marine financing is relatively specialized, requiring monitoring systems that may be beyond the capabilities and expertise of smaller banks.

Squires acknowledged that outreach to banks will be important. The NMMA is working with the National Bankers Association to promote the program, she said, and is encouraging dealers to reach out to SBA-approved banks in their areas.

“It’s going to be a bit of a struggle. Our job is to inform these banks that this is a new program and it’s a lending need that’s certainly unmet,” she said. “We’re not really sure yet who the players will be.”

The DFP loans will be available only to dealerships that qualify as small businesses, defined by the SBA as having annual receipts of less than $7 million, or a net worth not exceeding $8.5 million and an average net income after taxes for the two preceding fiscal years not exceeding $3 million. There are about 1,200 financial institutions approved to make SBA 7(a) loans.

Bill Baker, owners of Bakes Marine, a dealership and boat consulting business in Issaquah, had mixed feelings about how effective the SBA pilot will be. The program, he said, won’t solve the issues many boat dealerships face in trying to move excess inventory they are now having to sell at a loss.

“When (banks) look at the business plan, they look at the financials and they look at everything else, they’ll still be reluctant to lend to somebody who’s going to have difficulty showing a profit,” he said.

But Baker said the SBA program presents an excellent opportunity for new boat dealerships. The many boat dealerships that have gone out of business nationwide have left manufacturers without dealers in some areas, he said, creating room for new dealers to enter the market and tap into an existing customer base.

With inventory available at reduced prices and newly accessible financing through the SBA program, Baker said the market is ripe for new boat dealerships.

“What a great opportunity—you’ve got a known product line and you’ve got a customer base already out there,” he said. “In all difficult times, that means there’s an opportunity somewhere.”

About Deborah Bach

Deborah Bach is the editor and co-founder of Three Sheets Northwest. She is an avid sailor and long-time professional journalist. You can find Deborah aboard Three Sheets, an Island Packet 38, with her husband Marty and their cat Lily.

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