May be the ARC Loan a Sinking Ship?

Pending legislation could spell doom for the SBA’s latest loan program.

It has been six months because the SBA announced the America’s Recovery Capital Loan program. My last article upon this topic, “Will Anyone Be Saved by the ARC” discussed banks’ hesitance to participate as a result of onerous requirements and lending limitations for such a little loan amount.

The ARC loan is a $35,000, interest-free, 12-month deferred-payment loan that’s guaranteed by the SBA. The purpose of this program was to allocate $256 million in temporary respite to approximately 10,000 established, viable, for-profit smaller businesses suffering “immediate monetaray hardship.”

After much wrangling from both SBA and participating banks, approximately 45 percent ($142.1 million) of the full total funds assigned to the ARC loan program has been sent to 4,392 U.S. businesses. The SBA has been authorized to create ARC loans available through Sept 30, 2010. However, Jonathan Swain, SBA assistant administrator in Washington, D.C., says the funds will be exhausted prior to that date.

“Taking into consideration the reason for the ARC loan,” Swain says, “it appears to have already been administrated very efficiently. This loan is fundamentally not the same as any other SBA-guaranteed loan wanted to date.” He added that designing the ARC program to aid businesses already behind on the debt repayment is a stark contrast to just how most finance institutions qualify borrowers predicated on their capability to repay loans in a timely way. “We’ve currently had [more than] 1,000 lenders who’ve made ARC loans. And taking into consideration the temporary nature of the loan and the actual fact that lenders are actually required to create a complete new system to service a less credit-worthy kind of borrower, we believe it’s been a highly effective program.”

Not everyone will abide by the SBA’s assessment of this program. “We usually do not think that the ARC loan program is quite efficient,” says Tom Burke, senior vice president for Wells Fargo Bank. “Actually, taking into consideration the loan amount, it really is a significant tedious process both for the lending company and the borrower. For instance, all the typical SBA guidelines connect with this loan, plus another 40 pages of additional stipulations that produce customers unnecessarily jump through hoops.” Burke also remarked that most ARC loan applicants are micro-businesses that typically lack the mandatory documentation larger businesses have, such as for example CPA relationships, audited financials, proper tax records, etc. Even though a far more streamlined process and expanded lending limits will be ideal, Burke says making the ARC program available is important in supporting the bank’s customers.

Regardless of the barriers, the question remains: Exactly what will come of this program? Ironically, Sen. Olympia Snowe (R-Maine), among the ARC loan’s original authors, introduced a bill on Nov. 16 to repeal this program.

“Way too many borrowers are defaulting on the government-backed loans designed to buoy struggling businesses,” Snowe says, contending that default ARC rates will be greater than expected.

But based on the SBA, a 56 percent default rate was included in the program to make sure proper funding for loan guarantees.

“It really is ludicrous to even claim that there can be an unreasonable default rate to the program. Funds have not been fully disbursed and there’s a 12-month deferred repayment, so there is absolutely no viable data open to determine default rates,” says small company advocate Chuck Blakeman. He added that the lending guidelines are so onerous that only healthy businesses with the best credit scores could qualify. “THE HOME recently passed a bill that could extend the ARC loan program with a few tweaks such as for example increasing loan limits and making the application form process easier. It appears unlikely, however, that the bill will pass in the Senate.”

Whatever the problems plaguing the ARC program or its ultimate fate, you may still find funds available at this time around. It is very important potential borrowers do the preparatory work to make sure they have met each of the documentation and financial requirements. To learn more about this program, visit

Mark Deo

Mark Deo is writer of THE GUIDELINES of Attraction: Fourteen Practical Rules to greatly help Get The Right Sort of Clients, Talent and Resources to come quickly to You. A respected advocate of small company, he has appeared on CBS, FOX Business, NPR and MSNBC and his articles have already been published by Business Week, Entrepreneur, Fortune and CNN/Money. He’s CEO of the SBA Network, Inc., your small business growth-management firm in LA, Calif.

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