Many smaller dealerships are finding it difficult to secure flooring lines with lenders these days. This is nothing new to those of you experiencing these difficult times. The purpose of this article is to provide some insight as to what items you should prepare and where to look for solutions.
1) Credit — Yes, both the owner and the dealership need great credit. Lenders will run credit reports on both the owner and the business. So paying bills in a timely manner counts. The new lender you find may not be experienced in inventory loans (flooring), and they may not have experienced people employed to conduct inventory audits. So it is critical that you demonstrate that you have paid off the vessel per the flooring line agreements, and that all curtailments have been paid in a timely fashion.
2) Capacity — How much cash does the business have on hand? Lenders will want to know. They will also want current financial statements, and financials for the past one or two years. Moving forward, the business needs to generate monthly financial statements. More importantly, you need to share this information with lenders. Remember, lenders do not like surprises. They like being a part of the action.
3) Collateral — Provide a history of the product lines you represent. How long have they been in business? The manufacturing company is led by whom? Will the manufacturer guarantee inventory buy-back if something happens to your business? The flooring lender may want some additional information about the manufacturer.
4) Character — What about you? How long have you been in business? This is an area where longevity counts. Was your company started by your grandparents, your parents? How long at this location? Have you expanded the business? If so, what have you done? What does the business do for the community? How long have you been an active participant in the community? Where are your roots?
5) Conditions — What is the current market condition where you are located? What are the trends? What is selling in your area? Lenders are going to ask for a two- to three-year business plan. Lenders want to know they are partnering with someone who has a vision, someone who is willing to work through tough times, someone who is willing to fight to the death for a business. Lenders are looking for passion in what you do.
Passion for what you do every day makes it easier to see opportunities where others might not. Passion is what fuels us; it is what gives us strength to carry on when others give up. Passion is what makes the difference between success and failure. How is your passion level? How do you demonstrate it to lenders?
6) Compliance – As of May 1, 2009, every dealer needs to be in compliance with the Red Flag Rule. It simply is not an option or something you can get around to when you have nothing better to do. It is something that needs to be completed before your business becomes a statistic. Lenders will require it; the federal government demands it; and customers deserve it.
Many of you may wonder why lenders are concerned about federal compliance issues. I am not a lawyer, but as an educator I know the rule has a provision for lenders to oversee their vendors. A dealership could be viewed as a vendor of the lender. Simply stated, if you are not in full compliance, neither is the lender.
Effective Feb. 9, 2009, the Federal Trade Commission (FTC) increased the fines from $11,000 to $16,000 per violation, in addition to the administrative fines from $2,500 to $3,500 per violation. The part that should make you pay attention is that many states allow lawsuits under the “Unfair and Deceptive Business Practices Act.” That is where attorneys make money in addition to disrupting your business for a very long time.
Be prepared to show lenders your compliance policies and procedures, in addition to your employee education process.
Where to Look
Some larger local credit unions make “Member Business Loans” or MBLs. Contact them and invite them to view your store. Introduce them to your management team and let them see your inventory. For those of you having open houses or shows, invite them to attend. We need to work together to sell this industry to lenders.
You should also know every local lender in the 50-mile radius of your dealership. Many will do retail marine financing for those who deposit with them. Many local lenders are more familiar with lines of credit rather than traditional inventory loans (flooring).
Be flexible and investigate. The Small Business Administration, while not loaning for inventory, will accept applications for operating capital. Think outside the box and look everywhere for opportunities.