WASHINGTON, May 28 (Reuters) - 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.

RELATED NEWS:

* WRAPUP-GM bankruptcy looms [ID:nSP402834]

* Chrysler to help terminated dealers [ID:nN21292163]

* For full autos news coverage [ID:nCARS1]
(Reporting by Julie Vorman; Editing by Tim Dobbyn)