The stimulus plan created for small businesses the America’s Recovery Capital or ARC loan program. With $255 million of funds, it is geared to help businesses who have an existing loan with their loan payments.
1. The business seeking an ARC loan must have outstanding business debt.
The ARC loan program was designed to help “viable” as defined, small businesses who are suffering “immediate financial hardship” also defined. In order to be considered viable, the business must show that at least one of the last two years the company was profitable. It further requires that the outstanding loan(s) from a credit institution may not have any payments more than 60 days past due.
2. The ARC loan is not for start ups or change of ownership scenarios
The requirement of immediate financial hardship would need to be fully documented for these kinds of financial conditions; trouble making personnel payroll, slowdown of sales, bank refuses additional credit on loans, trouble paying debts etc. Evidence of these conditions must be shown in excruciating detail. So it is necessary that the borrower has very good accounting in place in order to run the necessary financial reports.
3. An ARC loan can be made up to $35,000
The Small Business Administration (SBA) is running the ARC program and an SBA preferred Lender, a bank, will be making the actual loan. A borrower needs to find a bank that is offering the ARC loan program. The bank will be looking for the SBA (US Government) to guarantee 100% of the loan. Proceeds of the loan can only be used to make payments on existing loans, like; secured or unsecured lines of credit, business related credit card debt, capital leases, and term debt.
4. This is an interest free loan, guaranteed by the SBA
The loan may be dispersed in up to 6 payments that go directly to paying off loans. After the last disbursement, there are no payments by the borrower due on this loan for 12 months. After the 12 months, the balance of the loan is amortized over 5 years (60 months) for full repayment of the principal. Again, there is no interest due on this loan, but any older existing loans must still have regular payments.
5. Will the bank require additional collateral for the loan?
This requirement is based on the individual SBA 7a Lender. Some will only require a signature from the business owner who is personally guarantying the loan. But in this case the personal credit of the owner will be scrutinized. Because the size of the loan is small enough and the SBA is guarantying 100% of the risk, if the business owner still has fair credit there is a chance no additional collateral will be required.
6. How do I apply?
Find a local bank who is participating in the ARC loan program. There will be a multipage comprehensive loan application. With the application a loan package including 2 years of tax returns, both personal and for the business, historical financial accounting, documentation for the existing loans, 2 years of Performa financial projections to show the business can make the necessary loan payments. The entire loan application will be packaged by the Lender and submitted to the SBA for approval. Once approved, a loan closing will occur and the disbursements commence. Many businesses are finding the application process so onerous they are turning to business consultants and SCORE volunteers for assistance, which is highly recommended. Do not be taken in by individuals who claim to guarantee approval if you pay them an up front fee.
Bottom Line
So in the end, if you have a business that has been around for a few years, and you have meticulous accounting records, and you have a loan with a bank in which you are struggling to make loan payments – the ARC loan is designed to provide interest free funds where for the first year you do not have to make any payments in order to help stimulate your business. For additional details contact the SBA.
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Tags: ARC Loans, business loans, SBA loans, small business administration
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