ARC Loans are Ready To Go – If You Can Find A Lender

June 16, 2009

The Small Business Administration (SBA) announced yesterday that small businesses can now begin submitting applications for its temporary new program called America’s Recovery Capital, or “ARC” for short. These loans are designed to provide a bridge to small businesses that have an immediate financial hardship – and can be for amounts up to $35,000.

The SBA defines a financial hardships as any of the following:

  • Loss/reduction of customer base
  • Increase in cost of doing business
  • Loss/reduction of working capital and/or loss/reduction of short term credit  facilities
  • Inability to restructure existing debts due to credit restrictions
  • Loss/reduction of employees (intellectual capital)
  • Loss/reduction of major suppliers (major suppliers out of business)

Other quick facts are as follows:

  • ARC loans are deferred payment loans are 100% guaranteed by the SBA;
  • There are no SBA fees associated with ARC loans;
  • ARC loans are only available to established, viable, for-profit small businesses;
  • ARC loans are disbursed over a period of up to six months;
  • Proceeds from ARC loans can be used for payments of principal and interest for existing, qualifying small business debt including, mortgages, term and revolving lines of credit, capital leases, credit card obligations and notes payables to vendors, suppliers and utilities;
  • The SBA will pay the interest on the ARC loans to the lenders at the variable rate of Prime plus two percent;
  • ARC Loans are interest free to the borrower [This beats the heck out of the 25.9% some of you are paying to Bank of America on your revolving lines];
  • Repayment will not begin until 12 months after the final disbursement
  • After the 12-month deferral period, borrowers will pay back the loan over a period of five years.

It will be interesting to see how all of this ultimately goes down.  Based on the details that I have read, there seems to be little risk on the part of the lender; however, many of them have been hesitent to get on board with the program.  A CNNMoney article last week revealed that most SBA lenders hesitant to jump into the program.    While the rate to the lender is variable, it isn’t as high as some of the other SBA loan programs.  This could be a turnoff to some banks, but as an SBA spokesperson pointed out in the CNNMoney article, there is virtually no risk to the lender since the SBA is providing a 100% guarantee.

Please let me know of your experiences with ARC loans – whether it be finding a lender who is doing these or any pro’s and con’s you have seen through the process.  I know a lot of businesses that will be applying for these in the next few weeks – providing that they can find lenders.

For more information on ARC Loans, visit the ARC Loan portion of the SBA’s Website.