Small business loan
Under authority provided in the American Recovery and Reinvestment Act (signed Feb. 17, 2009), SBA has designed a deferred-payment loan program to help small businesses make payments on existing debt.
Below is information to see if this $35,000 may be available to your business, along with parameters and conditions… (Sorry, its somewhat lengthy, but I have “distilled” info down to the below.)
What is an ARC Loan?
The America’s Recovery Capital, or ARC, loan program is designed to give viable small businesses suffering immediate financial hardship some temporary financial relief so they can keep their doors open and get their cash flow back on track.
The ARC loan program is a new, temporary program authorized by the Recovery Act.
- An ARC loan is a deferred-payment loan of up to $35,000, to be used for principal and interest payments on existing, qualifying debt/loans.
- ARC loans are 100% guaranteed by SBA and have no SBA or lender fees associated with them (unless the lender must secure collateral as part of the loan.)
- There are no interest charges to the borrower. The SBA will pay the monthly interest at the rate of Prime plus 2% to the lender on behalf of the borrower. The current rate is published in the Federal Register.
- There is a disbursement period of up to six months followed by 12 months with no repayment of the ARC loan principal. After the 12-month deferral period, the borrower pays back only the ARC loan principal over a period of five years.
How is “viable” defined and who defines it? What constitutes “immediate financial hardship”?
- Viable means the business is an established, for-profit business with evidence of profitability or positive cash flow in at least one of the past two years. An analysis of financial statements going back two years is also used. Future cash flow projections based on reasonable growth going out two years should show that the business will be able to meet current and future debt obligations, including future repayment of the ARC loan and operating expenses. Also, the borrower must certify that they are currently no more than 60 days past due on any loan being paid with an ARC loan and they must have an acceptable business credit score as determined by SBA.
- Immediate financial hardship means that there must be evidence to show a change in the financial condition such as declining sales, frozen credit lines, difficulty meeting payroll, paying rent, difficulty making loan payments or perhaps something else. Your lender must analyze and confirm that a hardship exists. The SBA has several categories for determining hardship status, such as loss or reduction of revenue in preceding year, increase in business costs in the preceding year, changes in operating ratios, loss of
working capital or short-term credit lines, and/or inability to restructure debt due to recent credit restrictions.
There are additional eligibility requirements. Please contact your SBA lender for details.
What loans/debts are “qualifying” and eligible to benefit from ARC? Can the proceeds be used to make payments on another SBA-guaranteed loan?
The only eligible purpose for use of ARC loan proceeds is to make periodic payments of principal and interest on qualifying small business loans.
Small business loans/debts qualifying and eligible for assistance with ARC loans include:
- Secured and unsecured conventional loans (mortgages, term and revolving lines of credit,)
- Capital leases,
- Notes payable to vendors/suppliers/utilities,
- Community Development Company (CDC) Loan Program (504) first mortgage loans Credit card obligations for business purposes.
ARC loans can not be used to make payments on another SBA-guaranteed loan, with the exception of loans made with an SBA guaranty after Feb. 17, 2009.
Can ARC loans be used to pay a home equity line of credit and credit card debt?
ARC loans can be used to pay home equity lines of credit and credit card obligations if the debt is for business purposes that meets 7(a) standards. Documentation requirements for assistance with home equity and credit card debt are stringent. (Contact your SBA lender for details.)
How do I obtain an ARC loan?
A small business should talk first to their current lender about obtaining an ARC loan.
ARC loans are made by commercial lenders (ARC loans are not made by the SBA itself.)
Is my business right for an ARC loan?
The ARC loan program is intended to give existing, viable small businesses that are suffering immediate financial hardship some temporary financial relief so they can keep their doors open and get their cash flow back on track, retain existing jobs, and ultimately grow in the future.
Examples of financial hardships include declining sales or revenues or difficulties in paying the operating expenses of the business.
ARC loans are not designed for new small businesses.
I’ve been making my business loan payments on time. Am I still eligible for an ARC loan? Can I use an ARC loan to establish a line of credit?
Subject to eligibility and your lender’s credit criteria, you may be eligible for an ARC loan to pay principal and interest on your existing small business loan(s), freeing up your income to pay other operating expenses. For more information, please speak with your SBA lender.
ARC loans are for making principal and interest payments on qualifying small business loans and are not a line of credit for a business.
When will ARC loans be available?
ARC loans will be available and SBA will begin accepting applications from lenders beginning June 15.
How long do I have to obtain an ARC loan?
ARC loans are available through SBA-approved lenders as long as funding is available or through Sept. 30, 2010, whichever comes first. For more information on the ARC loans program and eligibility requirements go to www.sba.gov
Image by iChaz.
You can find us on 
Do not copy our content - we are protected by 
Viable businesses who don’t want to jump through government and bank hoops to qualify for a loan should consider factoring A/R. This type of financing is based upon the asset of accounts receivable, resulting in cash paid upon invoicing rather than waiting 30-90 days for customer payment. This is a debt-free alternative to traditional small business financing that is becoming more and more popular as credit gets tighter. ARC loans backed by the SBA work well for some companies, but not enough to get the economy back on track.
Laura,
“ARC loans backed by the SBA work well for some companies, but not enough to get the economy back on track” – I have to agree with you, I’m afraid… There are more to do to get things better. Depending on your financing needs, factoring is indeed a viable option for cash flow-sensitive businesses (retail stores, for example…)
Thanks for your insight :)
There is more that needs to be done for small business than the ARC loans. I have been reporting on small business since the 1973-75 recession and I have never seen conditions worse than now.
I attended a seminar on small business financing recently at which the banker supposedly was to speak about financing in these stark times to small business people. He merely parrotted the typical banker-speak about submitting a loan package showing a healthy balance sheet, money in the bank, etc. I wanted to say: “one problem, idiot, the balance sheets are in disarray, there is no money in the bank, small business people are not taking salaries–all in an effort to keep the business alive.”
The SBA is little better than these bankers. The 7(a) loans, etc. are meant for better times. This leaves many a small business near the edge. Let me give you a couple of examples.
One business with 20 employees had a $500,000 line of credit cut off overnight. A line of credit was used to finance short term expenses and inventory. As a result, five people were layed off. There will be more layoffs.
In another instance, a small business had a business credit card that started off with about $40,000 in a credit line. He never actually accessed more than $5,000 on this line for capital equipment. But over the years the credit card company kept upping the credit line until it was quite substantial. Then he got a notice that the credit card had been canceled. Reported to his credit bureau, this caused a cascade effect on his other credit resources and has thrown the business into disarray.
These were two ongoing, healthy businesses. These two entrepreneurs had nothing whatsoever to do with the fiscal crisis. Yet those that did had billions of dollars thrown at them, these hard working individuals get nothing.
I don’t think these small business people want a handout. What they want and desparately need is access to credit. What about the SBA coming up with a substantial program where they guaranty credit to these small businesses. Sure, some of them will default but I think most of them would use this lifeline carefully to get their businesses back in the black. Instead of looking at the current balance sheet, why not look at the entrepreneur who is working for nothing to keep things going. Look at the history of the entrepreneur who has probably never defaulted on anything in his or her life. As a taxpayer and reporter on small business, I sure want to help these people more than bankers who continued to collect bonuses while their companies hit the skids.
RonD
Laura- thanks for taking the time to comment. I agree, A/R factoring can be a very useful tool for small business owners. I never have used it – yet. At my previous company we had a somewhat larger A/R and I thought to use AR factoring, – for me when weighing the cost of money for factoring vs bank- we were able to get favorable rates for the bank – “the hoop jumping” was weighed vs the cost of the money … Appreciate the input- Scott
Ron- thanks for taking the time to comment. I agree small business issues are numerous. And regretfully there are probably 100,000′s of stories such as yours above. The ARC program will help some not all. In my opinion- our economic recovery will begin when jobs are created. I believe even if our stock market goes up and realestate begins recovery- people need jobs. Small businesses create jobs. It cost to grow and create jobs. Captial needs to be available to assist in this growth.-