[Federal Register Volume 76, Number 27 (Wednesday, February 9, 2011)]
[Rules and Regulations]
[Pages 7098-7101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2836]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
[Docket No. SBA-2010-0015]
Dealer Floor Plan Pilot Program
AGENCY: U.S. Small Business Administration (SBA).
ACTION: Program implementation with request for comments.
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SUMMARY: SBA is introducing a new Dealer Floor Plan Pilot Program to
make available 7(a) loan guaranties for lines of credit that provide
floor plan financing. This new Dealer Floor Plan Pilot Program was
created in the Small Business Jobs Act of 2010. Under the new Dealer
Floor Plan Pilot Program, which will be available through September 30,
2013, SBA will guarantee 75 percent of a floor plan line of credit
between $500,000 and $5,000,000 to eligible dealers of new and used
titleable inventory, including but not limited to automobiles,
motorcycles, boats (including boat trailers), recreational vehicles and
manufactured housing (mobile homes).
DATES: Effective Date: The Dealer Floor Plan Pilot Program will be
effective on February 9, 2011, and will remain in effect through
September 30, 2013.
Comment Date: Comments must be received on or before March 11,
2011.
ADDRESSES: You may submit comments, identified by SBA docket number
SBA-2010-0015 by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Dealer Floor Plan Pilot Program Comments--Office of
Financial Assistance, U.S. Small Business Administration, 409 Third
Street, SW., Suite 8300, Washington, DC 20416.
Hand Delivery/Courier: Patrick Kelley, Senior Advisor to
the Associate Administrator, Office of Capital Access, U.S. Small
Business Administration, 409 Third Street, SW., Washington, DC 20416.
SBA will post all comments on http://www.regulations.gov. If you
wish to submit confidential business information (CBI) as defined in
the User Notice at http://www.regulations.gov, please submit the
information to Patrick Kelley, Senior Advisor to the Associate
Administrator, Office of Capital Access, U.S. Small Business
Administration, 409 Third Street, SW., Washington, DC 20416, or send an
e-mail to [email protected]. Highlight the information
that you consider to be CBI and explain why you believe SBA should hold
this information as confidential. SBA will review the information and
make the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Patrick Kelley, Senior Advisor to the
Associate Administrator, Office of Capital Access, U.S. Small Business
Administration, 409 Third Street, SW., Washington, DC 20416; (202) 205-
0067; [email protected].
SUPPLEMENTARY INFORMATION: On September 27, 2010, President Obama
signed the Small Business Jobs Act of 2010 (``Small Business Jobs
Act'') (Pub. L. 111-240). Section 1133(a) of the Small Business Jobs
Act authorized a new, expanded Dealer Floor Plan (DFP) Pilot Program,
which will remain available until September 30, 2013.
1. Comments
Although the new DFP Pilot will be effective February 9, 2011,
comments are solicited from interested members of the public on all
aspects of the new DFP Pilot. These comments must be submitted on or
before the deadline for comments listed in the DATES section. The SBA
will consider these comments and the need for making any revisions as a
result of these comments.
2. Dealer Floor Plan Pilot Program
Overview
Under the DFP Pilot, SBA is implementing a 7(a) loan guaranty
product targeted to retail dealers of new and used titleable inventory,
including but not limited to automobiles, motorcycles, boats (including
boat trailers), recreational vehicles and manufactured housing (mobile
homes). Key features of the new DFP Pilot are set forth below. More
detailed guidance on the new DFP Pilot will be provided in a procedural
guide (``DFP Procedural Guide'') that will be available on SBA's Web
site.
Eligibility
In addition to standard 7(a) eligibility requirements set forth in
13 CFR part 120 and SBA's Standard Operating Procedure (SOP) 50 10
5(C), Subpart B, Chapter 2, the eligibility of applicants for a floor
plan line of credit guaranteed under the DFP Pilot will be limited to
retail dealers of titleable inventory (both new and used) that is
required to be licensed and/or registered in at least one State after
acquisition. The inventory does not need to be licensed and/or
registered in the State where it is sold, but it does need to be a type
of inventory that could be licensed and/or registered in at least one
State of the United States, as ``State'' is defined in the Small
Business Act.
SBA sets size standards that establish which businesses are
considered small for certain government programs. Size standards have
been established for types of economic activity or industry and,
depending on the type of industry, are based on number of employees or
revenues. In addition, SBA has established an alternative size standard
based on the applicant's tangible net worth and net income. The Small
Business Jobs Act established a temporary alternative size standard of
a maximum tangible net worth of the applicant of not more than
$15,000,000 and an average net income after Federal income taxes
(excluding any carry-over losses) of the applicant for the 2 full
fiscal years before the date of the application that is not more than
$5,000,000. SBA's size regulations, including those pertaining to
affiliation, are set out in 13 CFR part 121 and apply to the DFP Pilot.
The applicant can qualify for a DFP line of credit using either the
industry-based size standards
[[Page 7099]]
(set forth in 13 CFR 121.201) or the alternative size standard set
forth in the Small Business Jobs Act.
Maximum Advance Rates and Guaranty Percentage
Lenders will be allowed a maximum advance rate of 100% on new or
used inventory. The maximum SBA guaranty will be no more than 75% of
100% of the cost (manufacturer's invoice) for new inventory and 75% of
100% of the cost or industry based wholesale book value, whichever is
less, for used inventory.
Loan Amount and Maturity
Loans under the DFP Pilot will have a minimum loan amount of
$500,000 and a maximum loan amount outstanding at any one time of
$5,000,000.
The minimum maturity on DFP lines of credit will be 1 year. The
maximum maturity on lines of credit approved under the DFP Pilot will
be limited to five (5) years. The DFP Pilot is scheduled to expire on
September 30, 2013. The expiration of the Pilot will have no effect on
any DFP line of credit approved by SBA on or before September 30, 2013.
Use of Proceeds and Repayment
Floor plan lines of credit guaranteed by SBA will be revolving
lines of credit. The proceeds may be used for the acquisition of
titleable inventory for retail sales, to refinance existing floor plan
lines of credit with another lender or to replace existing floor plan
lines of credit with the participating lender. Proceeds also may be
used to pay the guaranty fee. Proceeds may not be used for any other
purpose. If proceeds are used to replace a same institution floor plan
line of credit and the borrower defaults on the SBA-guaranteed DFP line
of credit within 90 days of initial disbursement, SBA may deny
liability on its guaranty of the DFP line.
Repayment of these lines will occur as the acquired inventory is
sold. The payment of interest will be due monthly.
Interest Rates
DFP lines of credit may have either a fixed or variable interest
rate. The maximum interest rates for loans under the DFP Pilot are the
same as those allowed by 13 CFR 120.213-120.214 for the standard 7(a)
loan program.
Collateral
Collateral must be secured by a first lien on all titleable
inventory acquired with proceeds of the DFP line of credit. This lien
may be perfected by obtaining either (i) the title to the inventory
reflecting no prior liens, or (ii) a first perfected security interest
in all titleable inventory acquired with any portion of the proceeds
from the SBA-guaranteed floor plan line of credit. The floor plan line
of credit which SBA guarantees does not have to be the sole floor plan
line. However, if more than one floor plan line exists to any one
dealer, then the inventory supported by each line is to be separately
accounted for and the sale proceeds of any inventory acquired with any
portion of the floor plan line guaranteed by SBA must be used to
directly reduce the balance on that line. In addition, dealers with
multiple floor plan lines for multiple product lines (manufacturers or
new/used) with multiple floor plan creditors will be required to have
appropriate delineated inter-creditor agreements to enable proper
security interest perfection. The lender may take additional collateral
in accordance with its policies and procedures governing its similarly-
sized, non-SBA guaranteed floor plan lines of credit.
Allowable Fees
The SBA guaranty fee and the lender's annual service fee set forth
in 13 CFR 120.220 apply to loans approved under this pilot program. For
loans approved under the DFP Pilot, lenders may charge the borrower the
same fees allowed under SBA's 7(a) loan program with the exception of
the extraordinary servicing fee.
For loans approved under the DFP Pilot, SBA will allow lenders to
charge an extraordinary servicing fee that is higher than the 2 percent
allowed in 13 CFR 120.221(b), provided that the fee charged is
reasonable and prudent based on the level of extraordinary effort
required to adequately service the floor plan line. In addition, if the
lender currently provides floor plan financing to its customers, the
lender may not charge higher fees for its SBA-guaranteed floor plan
lines of credit than it charges for its similarly-sized, non-SBA
guaranteed floor plan lines of credit. SBA's guaranty does not extend
to extraordinary servicing fees and, at time of guaranty purchase, SBA
will not pay any portion of such fees.
Secondary Market and Participating Lender Financings or Other
Conveyances
SBA loan guaranties made under the DFP Pilot may not be sold under
Agency regulations at 13 CFR part 120, Subpart F--Secondary Market.
SBA loan guaranties approved under the DFP Pilot may be included in
any participating lender financings or other conveyances, including
securitizations, participations and pledges, provided the lender
complies with 13 CFR 120.420 through 120.435.
Eligible Lenders
All SBA lenders with an executed Loan Guaranty Agreement (SBA Form
750) may participate in the DFP Pilot. Any delegated authority the
lender has as a 7(a) lender, such as Preferred Lender Program (PLP) or
SBA Express authority, will not apply to the DFP Pilot.
If a lender has at least $1 billion in floor plan lines of credit
in its current portfolio, the lender may qualify for delegated
authority under the DFP Pilot. The process for requesting delegated
authority will be set forth in the DFP Procedural Guide. Lenders that
are approved for delegated authority under the DFP Pilot will be
required to execute a separate Supplemental Guaranty Agreement. Lenders
with delegated authority must have existing policies and procedures
governing floor plan financing, including risk management policies and
procedures, and must administer their SBA-guaranteed floor plan lines
of credit in conformance with the existing policies and procedures used
for their similarly-sized, non-SBA guaranteed floor plan lines.
Lenders who have not participated in floor plan financing must
develop policies and procedures specific to floor plan financing,
including risk management policies and procedures. When developing
policies and procedures specific to floor plan financing, lenders may
follow guidance provided by their primary Federal regulator or, if none
is available, lenders may follow the guidance on floor plan financing
provided by the Office of the Comptroller of the Currency (OCC) in
Section 210 of its Examiner's Handbook. (The OCC Examiner's Handbook
can be found at http://www.occ.gov/static/publications/handbook/floorplan1.pdf.)
Lenders participating in the pilot initiative must have trained
and/or experienced personnel who are responsible for making, servicing
and liquidating floor plan lines of credit.
Application Forms, Authorization and Reporting Requirements
Each lender participating in the DFP Pilot must submit its first
application under the pilot following Standard 7(a) procedures to the
LGPC. SBA will begin accepting applications under the DFP Pilot on
February 9, 2011.
After the initial application under the DFP Pilot is approved by
the LGPC, a lender with delegated authority may submit subsequent
applications for DFP
[[Page 7100]]
lines of credit using its delegated authority. After OCRM has approved
the lender's policies and procedures governing floor plan financing,
non-delegated lenders may submit subsequent applications for DFP lines
of credit to the LGPC. SBA will provide instructions for lenders on how
to complete existing SBA application forms to include floor plan lines
of credit in the DFP Procedural Guide.
SBA will incorporate into the Standard 7(a) Authorization
Boilerplate applicable provisions related to floor plan financing.
Lenders with delegated authority may use the Standard 7(a)
Authorization Boilerplate or the Authorization for SBA Express and
Patriot Express loans. If the delegated lender uses the Authorization
for SBA Express and Patriot Express loans, the lender is responsible
for ensuring all applicable provisions related to floor plan financing
are included in the Authorization.
In addition to SBA's servicing and liquidation requirements set
forth in 13 CFR 120.535 and 120.536 and SOPs 50 50 and 50 51, lenders
will be required to service any floor plan line of credit guaranteed by
SBA with the requirement that as any item of inventory acquired with
the line is sold the proceeds from the sale must be submitted to the
lender to reduce the balance on the line pursuant to the sold inventory
item. (SOPs 50 50 and 50 51 can be found at http://www.sba.gov/about-sba-services/7481.)
In addition to their 1502 reporting on all SBA-guaranteed loans,
lenders will be required to report quarterly on disbursement and
collection activity on DFP lines of credit using SBA Form 1502R. (SBA
Form 1502R can be found at http://archive.sba.gov/idc/groups/public/documents/sba_homepage/lender_creditresol_form1502.pdf.) OCRM will
review these reports as part of its regular oversight of lenders
participating in the DFP Pilot.
Guaranty Purchase
Under the DFP Pilot, SBA will allow the lender to make demand on
SBA to honor its guaranty if the borrower is in default on any
financial covenant for more than 30 calendar days and the default has
not been cured. Also, under the DFP Pilot, if a lender discovers that
the borrower is in a sold out of trust (SOT) situation, the lender may
request that SBA honor its guaranty 30 calendar days after discovery of
an SOT situation that has not been cured during the 30 day period. In
addition, if a lender discovers an adverse change in the financial
condition, organization, management, operation, or assets of the
Borrower, the lender may request that SBA honor its guaranty 30
calendar days after discovery of the adverse change if it has not been
remedied during the 30 day period. While non-compliance with any non-
financial loan covenant other than SOT situations could trigger the
lender discontinuing disbursements and placing the account into a
payment only status, non-compliance with such non-financial covenants
will not trigger SBA's obligation to purchase the guaranteed portion of
the DFP line of credit.
In order to be consistent with industry practice, liquidation of
all business personal property, while preferred, will not be required
prior to the lender making demand on SBA to honor its guaranty. Prior
to making demand on SBA to honor its guaranty, the titleable inventory
securing the DFP lines of credit must be fully accounted for and
liquidated, with all net proceeds applied to net balance of the loan in
accordance with SOP 50 51 3. If any additional collateral has been
taken to secure the DFP line, the lender will not necessarily have to
fully liquidate such collateral prior to making demand on SBA, but the
lender will be required to obtain all necessary valuations and make a
determination as to whether the additional collateral will be
liquidated or, with proper justification, abandoned.
In addition to the standard purchase documentation required by SBA,
with any guaranty purchase request under the DFP Pilot lenders will be
required to provide copies of the floor check reports, the monthly
manufacturer's dealership financial statements (for dealers of new
inventory) or monthly financial statements (for dealers of used
inventory), and the monthly reconciliations of lender's floor plan
inspection reports with the dealer's financials for the twelve (12)
months prior to default. Delegated lenders also will need to provide a
copy of the lender's credit memo with any purchase request. Also, as
part of the guaranty purchase review, SBA will review the lender's
compliance with its existing policies and procedures governing floor
plan financing. In addition to the grounds set forth in 13 CFR 120.524,
the lender's failure to comply with its policies and procedures or the
terms and procedures set forth in this Federal Register notice or the
DFP Procedural Guide may result in denial of SBA's guaranty on the
loan, in full or in part. Also, if proceeds of a DFP line of credit are
used to replace a same institution floor plan line and the borrower
defaults on the DFP line within 90 days of initial disbursement, SBA
may deny liability on its guaranty of the DFP line.
Lender Oversight
As part of its ongoing lender oversight activities, OCRM will
review, evaluate and approve the floor plan lending policies and
procedures of each lender participating in the DFP Pilot. The timing of
the review of the lender's policies and procedures will be set forth in
the DFP Procedural Guide.
Additionally, for lenders participating in the DFP Pilot, OCRM will
follow its typical oversight practices utilizing a combination of off-
site monitoring and on-site reviews depending on the size and risk
assessment of the lender's DFP portfolio. OCRM also will monitor the
usage and performance of lender DFP loan portfolios which may include
reviews of lender loan files and reports provided to SBA by the lender
on its dealer floor plan activities to monitor and assess how lenders
are managing their DFP portfolios.
Regulatory Waivers
Pursuant to the authority provided to SBA under 13 CFR 120.3 to
suspend, waive or modify certain regulations in establishing and
testing pilot loan initiatives for a limited period of time, SBA will
waive or modify, as appropriate, the following regulations, which
otherwise apply to 7(a) loans, for the DFP Pilot only: (1) 13 CFR
120.221(b), which limits extraordinary servicing fees to 2% of the
outstanding balance on an annual basis, is being waived so lenders can
charge more than 2% on loans approved under this pilot initiative as
long as the fees are not higher than those charged on the lender's
similarly-sized, non-SBA guaranteed floor plan lines of credit and as
long as the fees are reasonable and prudent based on the level of
extraordinary effort required to adequately service the floor plan
line; (2) 13 CFR part 120, Subpart F--Secondary Market, is being waived
because loans approved under the DFP Pilot cannot be sold on the
secondary market; (3) 13 CFR 120.520(a) is being waived to allow
lenders to make demand on SBA to honor its guaranty on a DFP line of
credit if the borrower is in default on any financial covenant for more
than 30 calendar days and the default has not been cured, if a borrower
is in an SOT situation which has not been cured for more than 30
calendar days after lender discovers it, and if a borrower experiences
an adverse change in its financial condition, organization, management,
operation, or assets which has not been remedied for more than 30
calendar days after lender discovers it; and (4) 13 CFR 120.524, which
describes when SBA is released from
[[Page 7101]]
liability on its guaranty, is being modified because, in addition to
the grounds stated in this regulation, the lender's failure to comply
with its policies and procedures governing floor plan financing or the
terms and procedures set forth in this Federal Register notice or the
DFP Procedural Guide may result in denial of SBA's guaranty on the
loan, in full or in part. In addition, if the proceeds of the DFP line
of credit are used to replace a same institution floor plan line and
the borrower defaults on the DFP line of credit within 90 days of
initial disbursement, SBA may deny liability on its guaranty of the DFP
line. The regulation at 13 CFR 120.520(a) is also being waived to allow
lenders to make demand on SBA to honor its guaranty in the above
situations without being required to liquidate all business personal
property securing the line of credit first.
The statutory language creating this DFP Pilot overrides the
regulatory prohibition against floor plan financing or other revolving
line credit (except under 120.390) found in 13 CFR 120.130(c).
All other provisions of the Small Business Act applicable to the
7(a) loan program apply to loans made under the DFP Pilot. Unless
waived or modified by this Notice, all the regulations applicable to
the 7(a) loan program apply to loans made under the DFP Pilot. All
standard operating procedures applicable to the 7(a) loan program that
are not superseded by any provision of this Notice or the DFP
Procedural Guide apply to loans made under this pilot.
Lenders must use prudent lending practices in the making, servicing
and liquidating of SBA-guaranteed floor plan lines of credit and must
comply with all SBA Loan Program Requirements that are not superseded
by any provisions of this Notice or the DFP Procedural Guide.
SBA will provide more detailed guidance in the form of a procedural
guide which will be available on SBA's Web site, http://www.sba.gov.
SBA may also provide additional guidance, if needed, through SBA
notices, which will also be published on SBA's Web site, http://www.sba.gov.
Questions on the DFP Pilot may be directed to the Lender Relations
Specialist in the local SBA district office. The local SBA district
office may be found at http://www.sba.gov/localresources/index.html.
Authority: 15 U.S.C. 636(a)(34) and 13 CFR 120.3.
Dated: February 3, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-2836 Filed 2-8-11; 8:45 am]
BILLING CODE 8025-01-P