Business Insights

ARC Loans (America Recovery Capital), also called SBA Stabilization Loans, can be used to make payments of principal and interest on existing debt. These loans are relatively new (they are part of the 2009 Recovery Act), and are made by commercial lenders who are SBA participants. SBA guarantees 100% of the loan and pays the interest throughout  its term. Moreover, there are no fees to be paid to the SBA. The loan disbursement can be effected over a six-month period, and repayment of the loan principal is up to five years, with the first repayment after 12 months after the last disbursement of the loan amount. In other words, there is nothing to be repaid for 12 to 18 months, depending on how you receive the loan amount.

Too good to be true? There is a catch: the maximum loan amount is $ 35,000.  But still, this can help many small businesses.

Let me clarify one point here. For example, you have a mortgage, or another type of loan, for which you have fixed payment of, say, $ 6,000 a month.  The lender will then disburse this amount ($6,000) for 5 months, while for the sixth month you will get only $ 5,000, for a total of $ 35,000. You will start repaying the capital only (there is no interest) one year after the last disbursement. But if you need to close a high interest business  credit card, the lender should disburse $ 35,000 in one lump sum, and you will start repaying one year after the date of this disbursement.

How do you qualify for an ARC loan?

These loans are not for start-ups: your small business must be an established business, have financial statements demonstrating it was profitable at least in one of the past three years, and be able project enough cash flow to meet all its loan repayments, including the ARC one, for at least two years from the loan application. And of course, you must prove that you’ll use the funds to repay, all or in part, an existing loan. In this respect, your business should not be more than 60 days past due on any loan. Obviously, if you are current with your payments, that’s even better. You also will have to prove that your business is suffering an immediate financial hardship, such as: declining sales, difficulty in paying vendors or employees, etc.

As with other SBA loans, you will be only dealing with a lender, which is SBA approved and is participating to the program. In fact, only a fraction of SBA approved lenders are participating in it.

You can find the list of such lenders in Portland at:  http://www.sba.gov/idc/groups/public/documents/or_portland/or_arclenders.pdf

Here is where you have to be careful:

Although SBA is fully guaranteeing the loan, it does not require fees, it does not require that the business owner become a co-guarantor of such loan, each lender decides how they will apply the program. In other words, a lender might ask for fees, for an extra guarantee from the business owner etc. For example, some time ago I introduced a client to Wells Fargo, which is an ARC lender. My client had an interest heavy credit card debt (over 30%). He opened a new account with Wells Fargo Bank, requested the checks and an ATM card, for which he paid a fee, and then, after a week or so, was told by the loan officer that Wells Fargo accepts applications for an ARC loan only if it is used to repay another Wells Fargo loan, not to repay a loan with another institution or credit card. I then brought my client to Albina Community Bank, which accepted the application without obstacles.

In conclusion, my recommendation is to verify with the lender if they apply literally all the provisions included in the original program as stated  in the 2009 Recovery Act, before opening a bank account with them and submitting an application