June 29, 2009
SBA unveils new economic stimulus program – America’s Recovery Capital (ARC) Loan Program
If you own a business that’s at least two years old and are having difficulty making debt payments because of the economy, you may be eligible to apply for the new ARC Loan program announced by the SBA on June 15, 2009. Under this program, a borrower can obtain a loan from a participating lender up to $35,000 which will be disbursed in installments to make up to 6 months of principal and interest payments on qualified debt. The loan can be used for payments on traditional debt such as mortgages and lines of credit, but can also be used for payments on capital leases, notes to vendors, home equity loans used for business-related expenses, and for business credit cards. Note, however, that SBA 7(a), 504 or disaster loans made or guaranteed on or before February 17, 2009 are ineligible.
Besides temporary relief to the business’ cash flow, the loan is interest free to the borrower since the federal government is subsidizing the loan interest. The loan has a 100% SBA guarantee and there are no loan fees. Repayment of the principal is deferred until 12 months after the last installment is disbursed and can then be repaid over five years. The expectation is that the business climate will improve by that time so the business can easily handle the debt payments.
To qualify, the business must pass two tests – (1) be viable and (2) demonstrate a hardship. With respect to viability, annual financial statements provided as part of the application must show positive cash flow in at least one of the past two years, and that the establishment is and will continue to be a going concern.
Hardship can be demonstrated by showing declining sales and/or revenues, increasing expenses, cash shortages due to frozen inventory or receivables, accelerated debt or reduced or frozen
credit lines, difficulty in paying employees or operating expenses.
The borrower will also need to have "an acceptable credit score as determined by the SBA."
At this time, many lenders are only offering the program to their current customers. Some analysts predict that the $255 million set aside for the program will be used before the September 30, 2010 program deadline.
For more information contact the Pittsburgh District Office of the SBA (412.395.6560) or the SBA website at http://www.sba.gov/recovery/arcloanprogram/index.html.