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The two key qualifications for a business to be approved for an ARC loan are 1) they must be a viable business that is surviving the recession, and 2) they must prove that they are experiencing immediate, financial troubles.
According to Eric Zarnikow, associate administrator for Capital Access - the SBA department overseeing the ARC loan program, "the SBA defines a viable business as “a for-profit business with evidence of profitability or positive cash flow in at least one of the past two years."
Businesses must provide three years of financial statements, cash flow projections based on reasonable growth over two years and demonstrated ability 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 paid with an ARC loan and they must have an acceptable business credit score as determined by SBA.”
Financial hardship is defined by the Small Business Administration as a change in financial condition for the following reasons: the loss or major reduction of customers; an increase in business expenses; the loss or major reduction of working capital and/or short term credit facilities; the loss or major reduction of employees; the loss or major reduction of major suppliers; and the inability to recover from existing debts due to credit restrictions.
One of the major disadvantages of ARC loans is that they are not for start-ups, but are designed for established small businesses that already have qualifying small business loans and, although are experiencing immediate financial hardship, can prove they have been profitable in one of the past two years. They have to be in business at least two years and must also be able to show sufficient cash flow to meet current and future loan payments over a two-year period from loan approval.
Some examples of qualifying small business loans are:
- Business credit card debt
- Capital leases
- Notes payable to vendors and suppliers
- Development Company Loan Program (504) first lien loans
- Other non-SBA small business loans
- SBA-guaranteed loans made on or after February 17, 2009
NOTE: Small business owners whose current loans are already severely delinquent and whose businesses are not viable, meaning they lack sufficient future cash flow and have weak past business performance may not qualify for an ARC loan.
The stringent qualifications are understandable because the government is assuming the risk if the businesses that borrow the money cannot repay. But for those who qualify and are willing to complete the lengthy qualification and application process, ARC loans may be the answer to their financial struggles. |
