Getting the Lowdown on ARC Loans – Bailout for Small Business

About two months ago, I wrote about the Congress pushing the SBA to jump start loans again and President Obama allocated $15 billion of the initial TARP money ($700 billion) and it was dubbed the “Business Stabilization Loan Program”. The bill was passed and now we can report to you that it is ready for action.

It is now called the “America’s Recovery Capital (ARC) Loan Program” and the guidelines were released today. Entrepreneur magazine reported “”We are on target to issue the guidance and begin training, and have been reaching out to lenders regarding some of the specifics of that guidance. Guidance and forms are now available through www.sba.gov,” says Eric Zarnikow, associate administrator for Capital Access, the SBA department overseeing the ARC loan program. He added that borrowers can begin applying for these loans beginning June 15 the SBA, will be able to provide about 10,000 ARC loans to small businesses across the country, through its lenders.”

So what are the criteria for getting an ARC loan?

According to the SBA and Entrepreneur.com, “ARC loans will be up to $35,000 and available to established, viable, for-profit small businesses suffering “immediate financial hardship” in order to provide some temporary financial relief so they can keep their doors open and put their cash flow back on track. It is intended for businesses that need short-term help to make their principal and interest payments on existing qualifying debt (including conventional loans, credit card obligations, notes owed to suppliers and utilities).”

Another important element is that you must prove your ability to need it and the ability to repay it:

According to the SBA “businesses must provide three years of financial statements, cash flow projections based on reasonable growth over two years and demonstrated ability to meet current and future debt obligations, including future repayment of the ARC loan. Also, the borrower must certify that they are currently no more than 60 days past due on any loan paid with an ARC loan and they must have an acceptable business credit score as determined by SBA”

How do ARC loans work?
According to Entrepreneur.com “The loans are 100 percent guaranteed by the SBA and made by existing SBA 7(a) lenders. They have no SBA or lender fees associated with them (unless the lender must secure collateral as part of the loan). The disbursement period (up to six months) is followed by a 12- month deferral period with no repayment of principal. After the deferral period, the borrower pays back only the ARC loan principal over a five-year period. ARC loans are available through SBA-approved lenders as long as funding is available or through Sept. 30, 2010, whichever comes first, and cannot be used to make payments on another SBA-guaranteed loan, with the exceptions of loans made with an SBA guaranty after Feb. 17, 2009.”

One small downside – only 10,000 loans for 30 million businesses

Despite there being over 30 million small businesses in the U.S. and only 10,000 loans available, demand is expected to exceed supply. The SBA is limiting participation to 50 loans per week per lender and will accept a total of 1,000 loans per institution over the course of the program. It is understandable because it is not a handout and paperwork must be processed and track properly but only time shall tell if this is enough to get small businesses spending again at a large enough scale to break the cycle.

How could your small business benefit?

With the many billions of dollars being poured in to companies that the government says are “too big to fail”, this program recognizes that small businesses which are, according the Small Business Success Index, the core engine of innovation and job growth in the United States over the last 20 years, that they are just as important and for many small businesses, $35,000 could mean the difference in making it through some very tough times or closing their doors forever. When these small businesses can pay their bills usually to other small businesses, the “ship of capitalism” should start to right itself breaking a vicious cycle that occurs once an economic downturn starts to hit main street.

For more information about the program, visit www.sba.gov

This entry was posted on Friday, June 12th, 2009 at 2:20 pm and is filed under Capital Access, Raising Capital, small business. You can follow any responses to this entry through the RSS 2.0 feed.


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