SmallBizResource Blog -- Government

SBA Launches Loans For Vulnerable Small Businesses

Posted by Gayle Kesten Tuesday, Jun 16, 2009, 02:31 PM ET

"America's entrepreneurs and small businesses will be the ones to lead us out of the recession if we give them the tools they need to succeed."

So said SBA administrator Karen Mills at last month's National Small Business Week conference. One of the tools she was referring to was, at the time, the forthcoming American Recovery Capital (ARC) temporary loan program, which would provide up to $35K in relief for viable small businesses in need of "a bridge over troubled water," Mills said. Loans would be interest-free and 100% guaranteed, with payback deferred for 12 months, followed by a five-year period for repayment.

Well, as of Monday, ARC loans are now free to flow. Also brought to light are the two key qualifying definitions that help determine eligibility, tucked into this FAQ (PDF) about the program:

• Viable: The business is an established, for-profit business with evidence of profitability or positive cash flow in at least one of the past two years. An analysis of financial statements going back three years is also used. Future cash flow projections based on reasonable growth going out two years should show that the business will be able to meet current and future debt obligations, including future repayment of the ARC loan. Also, the borrower must certify that they are currently no more than 60 days past due on any loan being paid with an ARC loan and they must have an acceptable business credit score as determined by SBA.

• Immediate financial hardship: There must be evidence to show a change in the financial condition such as declining sales, frozen credit lines, difficulty meeting payroll, paying rent, difficulty making loan payments or perhaps something else. Your lender must analyze and confirm that a hardship exists. The SBA has several categories for determining hardship status, such as loss or reduction of revenue in preceding year, increase in business costs in the preceding year, changes in operating ratios, loss of working capital or short- term credit lines, and/or inability to restructure debt due to recent credit restrictions.

According to the Credit Union Times, "The SBA expects lenders to make about 10,000 ARC loans, said Eric Zarnikow, SBA associate administrator for capital access. The agency is limiting loan approvals to 50 per week per financial institution with no more than 1,000 in total. If the lender does not meet the 50 threshold for a given week, they can roll the remaining amount over to another week, Zarnikow said."

Loans are available for as long as funding is available, or until Sept, 30, 2010, whichever comes first, according to the SBA. Like any business decision, make sure to weigh the pros and cons before applying; The Wall Street Journal offers this breakdown.

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