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The U.S. Small Business Administration (SBA) has announced a new interest-free loan program designed to help struggling small business owners. They are called ARC loans and are another extension of the 2009 Recovery Act. ARC is an acronym for America’s Recovery Capital, and the program can provide up to $35,000 per borrower to help small business owners who are experiencing financial hardships.
According to a Wall Street Journal article on June 10, 2009: “Under the American Recovery Capital (ARC) loan program, small businesses (private, for-profit enterprises with up to 500 employees) that are at least two years old and can demonstrate an immediate financial hardship including a 20% decline in sales, revenues or working capital, may apply for loans directly with participating SBA-approved small-business lenders. Businesses must use the loans to pay off certain types of outstanding small-business debt, including credit-card debt, capital leases and notes payable to vendors.”
This new program caps the ARC loans to a total of 10,000 loans, or an average of 200 loans per state, making it very competitive for small business owners. They will be available for as long as funding is available, or until September 30, 2010, whichever comes first.
One of the unique features of the new ARC loans is that, unlike other SBA loans, there are no fees paid by the borrower. The SBA pays the interest to the commercial lenders, but the borrower pays back only the principal. This is by design to enable small business owners to reinvest more funds into their struggling businesses. The whole purpose of the ARC program is to provide more financial assistance to small business owners.
ARC loans are made through commercial lenders who are SBA participants. SBA provides a 100% guaranty on these loans to the lender and pays these banks a monthly interest rate throughout the terms of the loans, but there is NO INTEREST paid by the borrower. For-profit businesses that qualify will receive their loan money over a six-month disbursement period. The loan principal does not have to be repaid until 12 months after the last disbursement has been made. In addition, the borrower can take up to five years to repay the loan principal.
For small businesses that have been profitable in the past but are currently struggling, the new ARC loans provide relief and an opportunity for them to get back on their feet again. They can use the money to pay existing debt, invest in their business, purchase inventory or make payroll. For some small businesses, it may be just the fix to keep them going in this tough economy. |
