A Fantastic New Loan Program From the SBA
I WENT TO A SEMINAR HELD TONIGHT by the Hagerstown Economic Development Council and the Maryland branch of the Small Business Administration regarding the new America’s Recovery Capital (ARC) loan program that launched this week. For those of you who have been in business for at least 2 years, this is an amazing opportunity that you don’t want to miss out on. I’m going to give you some of the details from the meeting, as even most banks are not clear on the details of this program yet.
Basically, the ARC program provides loans to viable businesses up to $35,000 to be used for principle and interest payments. You can use the money to pay other loans (within certain limits, credit card debt, capital leases, notes payable to suppliers, and even personal mortgages or home equity lines if you can show the money was used for your business. But the best part is that the loans are 100% guaranteed by the SBA, payments are deferred for 12 months, they have no fees, and no interest to the borrower.
Let me repeat that again, because I’m not sure you got it. It’s a 5 year interest free loan that you don’t have to start paying back for a year.
Now, what’s a viable business? This is where things get confusing. The basic hard criteria are that you have to have been in business for 2 years, you have to have been profitable (or had positive cash flow) for at least one of the last 2 years , and you have to have quarterly projections for the next 2 years that show you will have sufficient cash flow to meet your debt service. Once you’ve got that, they’re going to look at both your business and personal credit and do a calculation (which they’re not sharing). But that’s not a fixed criteria. Even if your credit score doesn’t quite match, it just means they’re going to take a harder look at your business numbers. The loan plan is very flexible in this regard.
Since the loans are 100% guaranteed, banks should be very willing to make loans. Collateral is not required by the SBA, but your bank might want it anyways. And there’s a little something in it for the bank, as well, as there is actually interest on ARC loans (to the tune of prime plus 2%), but it’s being paid by the SBA. So that’s how you, as a borrower, get an interest-free loan. The bank has some discretion on how the funds will be used and paid, as well. The guidance from the SBA is that the proceeds must be used in the best interest of the borrower, and not the bank. So if you have a vehicle loan with the bank, and a high interest credit card balance somewhere else, it’s probably in your best interest for the credit card to be paid off, and the bank has to do that instead of what is in their best interest (which would be to pay off the vehicle loan). The bank can also either pay out the entire loan up front, or space the payments out over 6 months. Again, it’s whatever is best for you as the borrower.
There’s a good bit of information on the SBA website about this program, and one of the best things there is the ARC Loan Procedural Guidance document. This doc may be a little dry, but it’s exactly what the banks will be working from in determining eligibility. It’s also worth noting that even if you don’t qualify for ARC, there have been other changes to the SBA programs lately that will benefit business owners greatly. One of the biggest is that the 7(a) loan program has been changed from a 75% guarantee to a 90% guarantee (which means less risk for your lender), and the fees have been reduced.