Thursday, May 21, 2009

Does A $35,000 Interest Free Loan Sound Enticing?

It is National Small Business Week. This seems like a good time to introduce interest free loans for small business.

With its unofficial theme of recovery for small business, National Small Business Week provided an appropriate platform for the government to announce a significant new loan program for struggling business owners - the American Recovery Capital Loan (ARC) Program.

Guaranteed by the SBA, the ARC Loan Program provides interest free loans of up to $35,000 to small businesses "for the purpose of making principal and interest payments on existing, qualifying small business loans for up to six months".

These loans can include credit card loans, capital leases, 504 loans, other loans made without an SBA guaranty, and loans made with or without an SBA guaranty since February 17, 2009.

For the untold thousands of business owners across the country who are trying to work through an economic recession that’s left them with falling revenues that no longer cover operating expenses, debts and the basic cost of living - the ARC Loan Program is good news.

Below are more specifics on the ARC Loan, qualification criteria, and where to apply for the loan:

What is an ARC Loan?

The ARC Loan provides up to $35,000 to qualified small businesses to make payments of principal and interest, in full or in part, on one or more existing qualifying small business loans for up to six months. The loan is interest free and 100% guaranteed by the SBA. No collateral is needed and there are no fees associated with the loan.

Loan proceeds are provided over a six-month period and repayment of the ARC Loan principal is deferred for 12 months after the last disbursement of the proceeds.

And the best news is that repayment can extend up to five years.

Who is Eligible for an ARC Loan?

The loan is available to viable, for profit small businesses in the U.S. with qualifying small business loans (described above) who are experiencing immediate financial hardship (such as declining sales or revenues or if you are struggling to pay your business operating expenses).

Where to Go

Your local bank is the distribution point for these loans. If you presently have a qualifying loan from them, they have a very vested interest in seeing that you get one of the ARC loans to help you over the next few months. Go see them.
Posted by MaryAnn Shank at 4:56 PM

1 comments:

  1. While these ARC loans look good on paper, I have a few concerns:

    First, what about struggling, viable businesses that do not already have outstanding loans? Are we to just forget about them? Let them fail simply because they don’t have debt? These businesses also create jobs and impact their communities – but seem to be penalized because they don’t have current debt obligations.

    Second, if these funds are to go to viable businesses – why can’t these businesses (if they are “viable”) re-structure their own debt obligations or even just make their payments in the first place – isn’t that what viable means? Viable to a bank means being able to service your current debt obligations.

    Third, if these funds are supposed to be a bridge loan – what happens if this terrible economy lasts longer than we think? These monies will just prolong the inevitable of business closure or default if this bad economy last another 12 to 18 months. These loans are just pushing businesses onto a bridge that may end up going no where as no one really knows or can see the end of any economic bridge right now. Bottom line – more wasted taxpayer’s money if these businesses cannot pay these ARC loans back either.

    Lastly, who is this program designed to really help. Throwing money at businesses that cannot meet current obligations does not really help these businesses. It does not solve the troubles these businesses face. If businesses are struggling and cannot make P&I payments now – giving them another loan just does not make sense. I see this more of a way to help banks cover some of their failing commercial loan assets – without giving them another formal bailout. This could be good if it entices banks to loosen lending for businesses (creditworthy businesses – let’s not get into that subprime stuff again). But, it seems more like a way of propping up banks’ toxic commercial assets over the next six to 12 months.

    While this program may help relieve the short-term stress of some business owners, it really does nothing to help them in the long-term. I would rather see these funds going to help solve small business problems and not to band-aide programs in the hopes that a recovery will come sometime this summer.
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