Subscribe to News Articles
The program, which uses funding from February's stimulus legislation, is designed to provide ailing small businesses with deferred-payment, no-interest loans of up to $35,000, fully guaranteed by the Small Business Administration.
The SBA aims to approve $190 million in loans in 2009 followed by $150 million in 2010, to help just over 11,000 small businesses retain over 55,000 jobs.
But as a recent article in BusinessWeek magazine pointed out, SBA's 7(a) small business loans have decreased by $2.3 billion in the first half of 2009.
Although the loans are fully guaranteed by the SBA, banks earn an interest rate of 1.25 percent below the current prime rate - making it a costly investment for loans with a high default rate, the magazine said.
In addition to the lackluster response from banks and lenders, the required credit score of 680 has left some of the country's neediest small businesses out of options.
"We are not delinquent in any account yet, but we don't want to be," small business owner Diego Iorio told the magazine. Iorio's ARC loan application was denied due to his credit rating, which suffered after he took on debt to keep his business afloat. "Honestly we're just praying, and trying to keep our eyes open to see where we can find some relief to the situation."
Despite the SBA worries, the majority of small business owners are optimistic about the economy, according to a recent SurePayroll Small Business Scorecard.
Thanks for your comment Neal.
Like you, we also found most companies who contact us about this don't know what an SBA ARC loan is, what is required of them or even know about the limitations of an SBA ARC loan.
The bad news for most companies, even if the company is a "bankable" company, is that many traditional lending institutions are not lending like they have in the past. In fact, many banks are not renewing lines of credit to existing customers.
The SBA ARC Loan program continues to be problematic for many struggling small businesses. The loan amount is too small to help many businesses (Ask Congress why they thought this would be enough). The amount of documentation is nearly the same as is needed for a $1million loan. And the biggest issue that borrowers are facing is finding a lender who will loan to them, which is based on the type of qualifying debt that applicant has. So even if a business is qualified, it is far from automatic that they get a loan. As the article intimates, banks are wary and the debt they “prefer” are the term loans, notes and capital equipment leases, because the borrower can’t draw back on them once the ARC Loan pays off that debt.
My company, Business Borrowers Alliance, is contacting the large and mid-sized banks that have been named as participants to learn what their specific requirements are. We provide direct assistance and help to businesses throughout the complete ARC Loan application process.
Post new comment