If you have sufficient credit lines in place to
capitalize your business, please excuse this Alert, or perhaps forward it to a
fellow business owner outside CEBI who is struggling with cash flow. Or
maybe you wouldn't mind adding $35,000 of interest-free debt to your own
balance sheet, whether you need it or not.
The Small Business Administration (SBA) has announced a new
program, known as American Capital Recovery (ARC) loans, designed to help small businesses address an "immediate financial hardship" due to the current economic downturn.
This program, like all SBA loans, is a guarantee program -- a commercial bank is the lender, and SBA is the guarantor. In this case, the guarantee is 100%. Not all banks are in the ARC business, but those who are do so at no risk to their own financials. Granted, you'll have to jump through the hoops defined by the bank in order to get approved.
You may find community banks who are looking for small business customers to
be most receptive to your interest in an ARC loan.
There's an interesting twist -- unlike most SBA loans, which cannot be used to pay down debt, the website for this program
(http://www.sba.gov/recovery/arcloanprogram/index.html) specifically states that "ARC loans provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt."
And for the icing on the cake -- the SBA pays the interest on your loan for
you and you don't have to make any payments for a year. Again quoting the website, "ARC loans are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. 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. Repayment can extend up to five years."
There are some specific qualifying parameters you should be aware of:
- You must be an established business
- You must have financial statements demonstrating you were profitable in one of the past two years
- You must be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval.
You must be able to provide some reasons for your current financial hardship, 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)
SBA's "small business" qualifying
size standards are larger than you may think, and vary by industry: http://www.sba.gov/contractingopportunities/officials/size/SUMM_SIZE_STANDARDS_INDUSTRY.html
Also check SBA's ARC Loan eligibility page for more details:
If you have had some experience, either positive or negative, with SBA's ARC Loan program, please
to this email and share it with us.