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US RECOVERY ACT'S ARC LOAN PROGRAM
Are you a small business owner experiencing
financial hardship? Have you heard about the America’s Recovery Capital, or
ARC, loan program, authorized by the Recovery Act? The Better Business Bureau
of the Southwest (BBBSW) wants to provide you with a comprehensive description
of it as taken from the U.S. Small Business Administration Press Office,
released on June 8, 2009. Read on for their ARC Loan Frequently Asked Questions
For Borrowers and Lenders.
FOR BORROWERS:
What is an ARC Loan?
- The America’s Recovery
Capital, or ARC, loan program is designed to give viable small
businesses suffering immediate financial hardship some temporary
financial relief so they can keep their doors open and get their cash flow back
on track.
- The ARC loan program is
a new, temporary program authorized by the Recovery Act.
- An ARC loan is a
deferred-payment loan of up to $35,000, to be used for principal and interest
payments on existing, qualifying debt/loans.
- ARC loans are 100%
guaranteed by SBA and have no SBA or lender fees associated with them (unless
the lender must secure collateral as part of the loan).
- There are no interest
charges to the borrower. The SBA will pay the monthly interest at the rate of
Prime plus 2% to the lender on behalf of the borrower. (The current rate is
published in the Federal Register.)
- There is a disbursement
period of up to six months is followed by 12 months with no repayment of the
ARC loan principal. After the 12-month deferral period, the borrower pays back
only the ARC loan principal over a period of five years.
How is “viable” defined and
who defines it? What constitutes “immediate financial hardship”?
- Viable means the business is an established, for-profit
business with evidence of profitability or positive cash flow in at least one
of the past two years. An analysis of financial statements going back three
years is also used. Future cash flow projections based on reasonable growth
going out two years should show that the business will be able 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 being paid with an ARC loan and they must have an acceptable
business credit score as determined by SBA.
- Immediate financial
hardship means that there must be
evidence to show a change in the financial condition such as declining sales,
frozen credit lines, difficulty meeting payroll, paying rent, difficulty making
loan payments or perhaps something else. Your lender must analyze and confirm
that a hardship exists. The SBA has several categories for determining hardship
status, such as loss or reduction of revenue in preceding year, increase in
business costs in the preceding year, changes in operating ratios, loss of
working capital or short-term credit lines, and/or inability to restructure
debt due to recent credit restrictions.
There are additional
eligibility requirements. Please contact your local SBA office for details.
New Mexico District Office
625 Silver SW Suite 320
Albuquerque, NM 87102
(505) 248-8225
Colorado District Office
721 19 th St Suite
426
Denver, CO 80202
(303) 844-2607
What loans/debts are “qualifying” and eligible to benefit from ARC? Can
the proceeds be used to make payments on another SBA-guaranteed loan?
- The only eligible
purpose for use of ARC loan proceeds is to make periodic payments of principal
and interest on qualifying small business loans.
- Small business
loans/debts qualifying and eligible for assistance with ARC loans include: Secured and unsecured
conventional loans (mortgages, term and revolving lines of credit); capital leases; notes payable to vendors/suppliers/utilities; and credit card obligations for business purposes.
- ARC loans cannot be used
to make payments on another SBA-guaranteed loan, with the exceptions of loans
made with an SBA guaranty after Feb. 17, 2009.
Can ARC loans be used to pay a home equity line of credit and credit
card debt?
- ARC loans can be used to
pay home equity line of credit and credit card obligations if the debt is for
business purposes that meets 7(a) standards. Documentation requirements for
assistance with home equity and credit card debt are stringent. (Contact your
SBA lender for detail).
How do I obtain an ARC loan?
- A small business should
talk first to their current lender about obtaining an ARC loan.
- ARC loans are made by
commercial lenders (ARC loans are not made by the SBA itself).
- Non-SBA lenders can
become SBA lenders in order to make ARC loans.
- SBA district offices can
assist lenders can assist lenders in becoming approved SBA lenders.
Where can I get more information?
Is my business right for an ARC loan?
- The ARC loan program is
intended to give existing, viable small businesses that are suffering immediate
financial hardship some temporary financial relief so they can keep their doors
open and get their cash flow back on track, retain existing jobs, and
ultimately grow in the future.
- Examples of financial
hardships include declining sales, revenues, or difficulties in paying the
operating expenses of the business.
- ARC loans are not
designed for new small businesses.
I’ve been making my business
loan payments on time. Am I still eligible for an ARC loan? Can I use an ARC
loan to establish a line of credit?
- Subject to eligibility
and your lender’s credit criteria, you may be eligible for an ARC loan to pay
principal and interest on your existing small business loan(s), freeing up your
income to pay other operating expenses. For more information, please speak with
your SBA lender.
- ARC loans are for making
principal and interest payments on qualifying small business loans and are not
a general line of credit for a business.
When will ARC loans be
available and how long do I have to obtain an ARC loan?
- ARC loans have been
available since June 15 and are available through SBA-approved lenders as long
as funding is available or through Sept. 30, 2010, whichever comes first.
FOR LENDERS:
When will I receive
additional guidance and details regarding how to administer ARC loans? How will
I know if my borrower is eligible? How do I know whether a business is
“viable”? How do I know what constitutes “immediate financial hardship”?
- A detailed Procedural
Guide is available at www.sba.gov. FAQ’s for borrowers provided above
contain summary information
Will lenders be paid
interest on ARC loans?
- The lender will bill the
SBA, and the SBA will pay Prime plus 2% to the lender on behalf of the
borrower. SBA will publish the current interest rate in the Federal Register.
I have heard that ARC loans
are relatively risky. Will ARC loan defaults impact my risk rating?
- The SBA understands that
ARC loans will carry greater risk than most SBA loans, and we expect a higher
default rate than 7(a) loans. The SBA will be closely monitoring the ARC Loan
portfolio. Performance of a Lender’s ARC loan will be taken into account as
part of a Lender’s contribution to SBA’s mission in determining the satisfactory
performance of a lender.
Where are the forms I will
need for administering the ARC loans?
- Forms are available
along with the lender guidance at www.sba.gov.
When can I get trained on
providing ARC loans? Where should I go for questions?
- SBA district offices are
ready to begin training lenders and answering questions. If you are not already
an SBA lender, please contact your local SBA district office:
http://www.sba.gov/localresources/index.html.
Will the SBA’s electronic
submission method for delegated lenders be available for the ARC program?
- Yes, delegated SBA
lenders should use the electronic submission system, eTran. Non-delegated SBA
lenders will submit applications to the SBA’s existing 7(a) Loan Guaranty
Processing Center in Citrus Heights, California.
[PRINTER FRIENDLY VERSION]
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