Vice President Biden looks on as President Obama signs the bill for the American Recovery and Reinvestment Act, which laid the groundwork for the ARC loan program. |
The concept of ARC loans began when the American Recovery and Reinvestment Act was signed into law on February 17, 2009, was a dramatic response from the U.S. Government to provide both short- and long-term solutions to the nation’s economic crisis. Its primary purpose was to jump-start the economy, create or save millions of jobs, and ensure our nation can meet the challenges of the 21st century.
Some of the key benefits of the Recovery Act benefiting small business owners include:
- Provides entrepreneurs financial relief from the current economic crisis that will help encourage borrowing and lending to all small businesses, including start-ups
- Helps unlock credit markets for small businesses
- Temporarily eliminates some loan fees for borrowers and lenders
The SBA plays a key role in this recovery. Funds provided to SBA through the Recovery Act, such as ARC loans, will help unlock credit markets and encourage recovery. For example, the Recovery Act increases the SBA guaranty on SBA backed loans from 85% (on loans of $150,000 or less) to 90%. This reduced risk for lenders will encourage lenders to extend more credit to small business owners.
In addition, on March 16, 2009, the government also committed up to $15 billion to stimulate lending markets with a focus on commercial banks, credit unions and other small lenders. This was a significant move by the U.S. government. Here’s why: Banks typically sell loans to companies who, in turn, sell them to investors as securities. Banks can then make more loans, including loans to small businesses. The slowing economy, however, has slowed this entire process. This, in turn, affects loans available to small business owners.
The 2009 Recovery Act and the government’s announcement on March 16, 2009, however, encourages more banks to lend because the Treasury Department stands ready to purchase these loans in the secondary market. This demonstrates the importance the Recovery Act assigns to investing in small business and the entrepreneurial spirit of Americans.
The new ARC loans allow small businesses to focus on and restructure their business plans to remain viable. Historically, micro loans were designed to reach low-income individuals, women and minorities in rural and urban areas. The expansion by ARC stabilization loans will make these micro loans available to many, many more small business owners. |
