Jan. 18, 2010 – Delving into today’s lending options

By Karin Gelschus
Associate Editor
ORLANDO, Fla. — Finance executives serving on a panel that examined “Today’s lending options” believe dealers need to refocus their efforts on local, regional and state lending institutions.
“It’ll be organic growth — local, local, local,” Jim Coburn, vice president of Flagstar Bank, said of future lending opportunities.
Coburn and the other panelists discussed ways dealers can gain and maintain lending options in the current market. Moderator Bill Thompson, president of Cardinal Points Network, prompted the panelists’ stances on the current lending state, including SBA, floor planning, retail and commercial lenders.
The topics the panel discussed during the hour-long session at the Marine Dealer Conference & Expo closely mirror the lending issues within the powersports industry.
The panel consisted of Coburn; Bruce Van Wagner, president of the marine division within GE Distribution Finance; Ralph Ross, deputy district director of the Small Business Administration (SBA), Jacksonville, Fla., office; Scott Anderson, vice president of Recreation Lending, Merrick Bank.

Future of financing
Although the worst is believed to be behind the financial industry, the recovery has been slow, and it’ll continue to be that way for awhile, says Coburn of Flagstar Bank. “By then end of 2011, the economists think consumer confidence will be turned around,” he said. “We mirror that.”
In order to continue relationships with national lenders, Van Wagner of GE Distribution Finance says dealers need to be open about their business plans.
“A challenge to you as dealers and manufacturers is convince us as to why we should invest in your dealership, why we should invest in you as a manufacturer and continue to lend to you as a customer,” he said. “Unfortunately you’ve seen higher prices; you’ve seen us ask for a lot more information. You’ve seen us do bank deposit reviews. You’ve seen us ask for collateral and things that are necessary to maintain that lending, so yes, we’re elevating the bar to a lot of dealerships. For good reason, we want to continue to be able to lend. The same is for the manufacturers. We feel that’s going to benefit every one of the dealerships, to make sure they’re around to handle things like warranty.”
Local relationships are going to become more crucial, says Ross of the Small Business Association.
“As these large developments stay empty, I don’t know if we can rely on a real solid banking industry,” he said, “so we have to deal with local, local, local.”

Wholesale and retail lending
With loans at times harder to obtain, many dealers have turned to local lending sources. As vice president of a local bank, Coburn says there are opportunities out there, but dealers need to invest some time.
“Make sure you have a realistic business plan, one that goes three years out,” he advised. “Be sure to let your banks know about your business and be prepared to educate him or her about your business. Sometimes they’re going to want to talk more about personal guarantees if they’re not there in your business. They’re going to want to talk about additional or secondary collateral offerings, recourse and repurchase agreements. Banks are going to be thinking outside the box to try and shore up the floorplan more.”
Dealers should be prepared to talk about these topics, and Ross says it’s the dealer’s job to educate the lender about their business as well as the industry.
“In some ways, you have to take the lead,” he commented. “Assume you have a banker that has some skills, but as far as the industry goes, they’re going to be in the dark. We’re in the process of figuring out all this together. In order for you to coach a banker, you’re going to have to be on top of your business plan, have a vision of what your revenue is going to be like and what your relationship is going to be like with that banker.”
Communication is also vital within a dealership, says Anderson of Merrick Bank.
“One of the most important things you can do and the industry needs right now is a little more accountability with the dealer principals and the business office,” he noted. “I question how familiar you are with the day-to-day operations of the business office. As times have gotten tough, there are things happening in the business office that you may not be aware of until it becomes a problem. That has hurt the industry significantly from a retail lending perspective. There’s not a retail lender in the marine industry in the past year that hasn’t been burned by numerous dealers. Unfortunately the repercussions from that go throughout the industry. Rebuilding those relationships with whichever national retail lenders you’ve been working with and trying to secure those trusting relationships with local lenders and credit unions is critical.”
When forming new relationships, dealers should expect to see more due diligence from the banks, says Anderson.
“When we ask for updated financial statements and other things it’s because of what’s happened, and we have to shore up who we work with,” he explained. “There are still options out there, but the game is a little bit different today than it was in the recent past.”

National lenders
National financial institutions have tightened who they’re doing business with, but Van Wagner of GE says they will continue to work with dealers. However, GE needs more information about dealers’ business plans in order to continue floor planning.
“Communication is critical in the process,” he said. “When you share your financial information, don’t just send it in thinking, ‘Oh they can figure it out.’ You probably had a tough year. Shouldn’t you include some notes that outline what happened in your business? ‘Here’s a projection of why you should invest in my business and why we’re going to do that much better next year.’ It’s important that you be open and share what’s happening with your business.”
As the recession hit full force, Van Wagner says they’ve started to challenge their dealers more.
“In the risk part of GE, we challenge a lot of dealers. We maybe over manage to some degree, but it’s mandatory for us to maintain our commitments,” he commented. “I know it’s a struggle, but I think we’re all going to be better for it as we come out of this.”
It’s not just the dealers, Van Wagner says, noting they’ve tightened their criteria with manufacturers as well.
“Our goal is to make sure those manufacturers can live up to those agreements,” he added. “We’re working diligently now to make that happen. We’ve been very pleased with the direction things have gone in working with the manufacturer. As we get those agreements enhanced, it will benefit the dealers and allow us to do more business.”

SBA’s role
For the longest time, the Small Business Association (SBA) wanted no part of floor planning, but with the banking crises they stepped up to fill a void that was desperately needed by some dealers.
However, moderator Thompson explained that dealers who attempted to utilize the SBA 7(a) DFP program have felt a great deal of frustration as lenders have been resistant to participate. A main reason for that is because in the past the SBA shied away from floor planning, says Ross.
“I was a loan officer for 20 years and I cheerfully told people who wanted floor planning, we didn’t do that,” he said. “The only time we do direct lending is in disasters. In response to the collapse of the floor planning product availability, we put something together in a couple months. One of the problems is trying to get a broke banking industry interested in a new product. The other part of this is we have no experience.”
There has been a steep learning curve with the alterations in the lending industry. Van Wagner says no one involved can continue to do business as they were in the past. “We have to make a change.”