|The Small Business Administration (SBA) has announced details of its much-anticipated program to free up emergency loans for struggling businesses. The “America’s Recovery Capital” (ARC) program kicked off on June 15, 2009. The money, provided by private lenders but fully guaranteed by the SBA, may be available until program funding runs out or until September 30, 2010, whichever comes first. And with loans to qualifying businesses made on a first come, first-served basis, it makes sense to apply as soon as possible. If you’ve had trouble getting capital, this may be an opportunity you don’t want to miss.
Authorized by the American Recovery and Reinvestment Act of 2009, the ARC program is supported by $255 million that Congress set aside to pay for loan guarantees and interest subsidies. But the actual funding will be higher, according to the SBA. That’s welcome news to entrepreneurs caught in today’s tight-money squeeze. The stimulus legislation encouraged lending to small businesses, raising loan guarantee ceilings and waiving fees on SBA-backed loans, and average weekly loan volume increased by more than 25% percent in the spring of 2009. But that jump was from very low levels. The number of loans made by private lenders through the SBA’s popular 7(a) program declined by 57% in the first quarter of 2009 compared with the same period a year earlier, and major lenders outside the program have also reported tighter credit.
The ARC program provides business owners with short-term loans of up to $35,000 that may be used temporarily to cover payments on existing debt. The SBA is subsidizing the loans, making them interest free to business owners. No repayments are required during the first year and you can take five years to repay the loan.
The loans are designed to help businesses experiencing “immediate financial hardship.” To qualify, you must have an established business, provide financial statements demonstrating your business was profitable in at least one of the past three years, and be able to project sufficient cash flow to meet loan payments during the two years following loan approval.
Funds will be distributed to business owners during the six months following loan approval. The money may be used for paying principal and interest on existing small business debt, including mortgages, term and revolving lines of credit, capital leases, credit card obligations, and notes payable to vendors, suppliers, and utilities.
ARC loans are made by participating banks, but with a 100% guarantee from the SBA. If a business owner defaults, the SBA will repay the loan’s full value to the bank. That feature should encourage plenty of lenders to offer ARC money, and owners of businesses hurt by the recession are lining up. Applying now could be wise.