New release on SBA Recovery Capital loans (ARC). Another silly SBA program.

Here they go again, another attempt to ‘do good” that misses the mark. Below see the outline of the help the SBA is offering small business owners. 

Small businesses suffering financial hardship as a result of the slow economy may be eligible to receive temporary relief to keep their doors open and get their cash flow back on track through a new loan program announced by Small Business Administration (SBA) Administrator Karen Mills. Beginning on June 15, the SBA will start guaranteeing America’s Recovery Capital (ARC) loans. ARC loans are deferred-payment loans as highlighted below.

• These short-term loans of up to $35,000 can be used to make up to six months of Principal and interest payments on qualifying loans for existing “viable” for-profit small businesses in the United States.
• Debt may include secured and unsecured conventional loans (mortgages, term and revolving lines of credit); capital leases; notes payable to vendors/suppliers/utilities; Development Company Loan Program (55504); first mortgage loans; credit card obligations; and loans made with an SBA guarantee after February 17, 2009.
• Loans have no SBA fees or interest costs for the borrower and are 100% guaranteed by the SBA.
• Loans will be disbursed within a period of six months, followed by 12 months of no repayment, and then five years to pay it back.
• ARC loans are for viable businesses, meaning that the business must have an established history of good performance, but are in a situation where they need extra help to bridge the “troubled waters”.
• Guaranteed Interest: SBA will pay monthly interest to lenders at “reasonable” rates throughout the term of the loan.
• The SBA expects to release detailed guidance for lender training by June 8.
• The SBA does not expect to be in a position to accept loan packages from lenders until June 15.

ARC loans will be made by commercial lenders, not SBA directly. 

Allow me to point out a few problems with this program which render it fairly useless.

1. What does viable mean?…an established history of good performance. Yet these loans are for ‘Small Business suffering financial hardship…’ which means they are not viable at the moment…       This is silly as any business in need of $35,000 to pay unpaid loan payments in arrears, the intended purpose and use,  cannot demonstrate “an established history of good performance”. In fact the point is that under this test, no small business in America who needs a loan to cover unpaid payments, the intended purpose of the loan, can show viability by their definition.

2.They eliminate any SBA loans made prior to Feb 2009!!!!!!!! So anyone with an older SBA loan, just about every outstanding SBA loan, cannot participate in the SBA program…Why ? I have no idea. But isn’t this silly? Discriminating against SBA borrowers in an SBA program?

3. For those SBA borrowers that do qualify it can not include interest and are 100% guaranteed by the SBA, this eliminates any possible participation by any newer loans. So what’s the point?

4. What are reasonable interest rates?  Why should this make a difference, who determines reasonable and what difference if the interest is high and deemed unreasonable the borrower is still in need of support.

My guess is that no more then a small handful of borrowers will qualify under these guidelines and for the remainder…no help at all.

Thank you again SBA another brilliant plan, that does very little to support our small business community.

When will you get it right?