ARC Loans - SBA Loan for Struggling Small Businesses

If you're a small business owner and are having a tough time meeting business expenses during this difficult economy, you may consider looking into a Small Business Administration (SBA) loan program designed just for you.

Under the America's Recovery Capital (ARC) loan program, small business owners may receive up to $35,000 in short-term relief. The ARC loan is intended for viable small businesses facing immediate financial hardship to help the business ride out the current economic situation and return to profitability. The ARC loan is not intended for new business start-ups.

Small business owners may use the proceeds from an ARC loan to make payments, in full or in part, on one or more existing, qualifying small business loans for up to six months. Using an ARC loan to pay existing debt allows the small business owner to redirect cash flow to invest in their business, to help sustain the business and retain jobs. There is a limit of one ARC per small business.

Examples of qualifying loans may include credit card obligations for your business, capital leases, notes payable to vendors/suppliers, Development Company Loan Program (504) first lien loans, other loans to small businesses made without an SBA guaranty, and loans made by or with an SBA guaranty on or after Feb. 17, 2009.

ARC loans are designed to help businesses experiencing immediate financial hardship for reasons such as:

• 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)

ARC loans are interest-free for the borrower, carry a 100% guaranty from the SBA to the lender, and require no fees paid to the SBA. (The SBA will pay lenders a monthly interest rate through-out the term of the loan.) Loan proceeds are provided over a six-month period and the repayment of the loan is deferred for twelve months after the last disbursement of the loan proceeds. Repayment can extend up to five years.

The SBA says that the best candidates for ARC loans are viable businesses that have been profitable in the past but are now struggling, but have continued to make loan payments or are just beginning to miss loan payments due to financial hardship. So, what exactly does the SBA mean when they say "viable businesses facing immediate financial hardship?"

The SBA defines "viable" as a small business that has been profitable in at least one of the past two years. The past two years of the business' financial statements will be analyzed and future cash flow projection should be based on reasonable growth for two years going forward and show that the business will be able to meet all obligations including other debts, ARC payments, and operating expenses. Also, the borrower must certify that they are no more than sixty days past due on any debts to be paid by ARC proceeds and must have an acceptable business credit score as determined by the SBA.

The SBA says "immediate financial hardship" means that there must be evidence to show a change in financial conditions such as declining sales, frozen credit lines, difficulty meeting payroll or making loan or rent payments. Your lender will have to analyze and confirm that a hardship exists. The SBA has several categories for determining hardship status, such as a loss or reduction of revenue or an increase in business costs in the proceeding year, a change in operating ratios, loss of working capital or short-term credit lines, and/or inability to restructure debt due to credit restrictions.

ARC loans are made by commercial lenders who are SBA participants. The SBA recommends that business owners interest in the ARC loan first contact their current lender. Even if your lender does not currently make SBA loans, they may contact the local SBA office to become an SBA lender for the purpose of making ARC loans.

The loans have been available since June 15 and will continue until September 30, 2010 or until the funds run out, whichever comes first.



Source:
U.S. Small Business Administration