US auto dealers can soon seek gov't-backed loans

WASHINGTON, May 28, 2009; Julie Vorman writing for Reuters reported that the Obama administration will offer U.S. auto dealerships loans of up to $2 million to help buy vehicles and maintain inventories, the top members of the Senate's Small Business Committee said on Thursday.

The U.S. Small Business Administration's pilot program will provide loans of $500,000 up to $2 million that are repayable over five years and backed by a 75 percent government guarantee, according to Senator Mary Landrieu, the Democrat who chairs the committee, and Senator Olympia Snowe, the top Republican on the panel.

"The SBA's plan to offer floor plan loans to America's dealerships will help small businesses stay open in this uncertain economy," the senators said in a joint statement. "These loans will enable dealerships to maintain their inventory and save jobs." The so-called floor plan financing is a line of credit that lets auto dealerships borrow against their inventory, then repay that debt as they sell vehicles or borrow against the line of credit again to add new inventory.

Some U.S. auto dealerships have lost access to floor plan financing because their lenders were unable to resell the loans into the secondary market. The economic recession has depressed car sales, forcing Chrysler LLC and General Motors Corp (GM.N) to drop smaller and less profitable dealerships.

GM is widely expected to file for bankruptcy protection on June 1, and Chrysler is already in bankruptcy. The Small Business Administration's new loan program will also be available to dealers that sell titled inventory such as recreational vehicles, motorcycles, boats and manufactured homes. The pilot program starts July 1 and extends through Sept. 30, 2010, when the federal agency will decide whether to continue it.

Editing for Reuters By Tim Dobbyn