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SBA Offers Interest-Free (ARC) Loans to Small Businesses Beginning June 15

(Washington, DC) - Starting June 15, the Small Business Administration will start guaranteeing America’s Recovery Capital (ARC) loans.

ARC Loans are deferred-payment loans of up to $35,000 that will be made available to established, viable, for-profit small businesses in need of short-term help to make their principal and interest payments on existing debt. The loans are interest free and 100 percent backed by the SBA.

Repayment will not begin until 12 months after the final disbursement. After the 12-month period, borrowers will pay back the loan principal over a period of five years.

The ARC loan program is intended to provide an immediate infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses so in order to help sustain the business and to retain jobs.

According to the SBA, the best candidates for ARC loans are small businesses that are struggling, yet have been making loan payments, or those just beginning to miss loan payments due to financial hardship.

Examples of qualifying loans may include credit card obligations for your business, capital leases, notes payable to vendors/suppliers, Development Company Loan Program (504) first lien loans, other loans to small businesses made without an SBA guaranty, and loans made by or with an SBA guaranty on or after Feb. 17, 2009.

Commercial lenders and not the SBA will make the loans available, so businesses interested in applying for an ARC loan should first contact their current lender.

Below is more information about the ARC loan program.

ARC Loan Details:
ARC loans can be used to make payments of principal and interest, in full or in part, on one or more existing, qualifying small business loans for up to six months.
ARC loans do not require collateral, are interest-free to the borrower, carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA.
Loan proceeds are provided over a six-month period and repayment of the ARC loan principal is deferred for 12 months after the last disbursement of the proceeds. Repayment can extend up to five years.
ARC loans are made by commercial lenders who are SBA participants. Non-SBA lenders can become SBA participants by working with their nearest SBA district office.
ARC loans will be offered by some SBA lenders for as long as funding is available or until September 30, 2010, whichever comes first.

ARC Loan Eligibility:
ARC loans are available to viable, for-profit small businesses in the US that have qualifying small business loans and are experiencing immediate financial hardship.
Your small business must be an established business, have financial statements demonstrating it was profitable in one of the past three years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval. If your business does not meet these criteria, you can discuss your eligibility with your lender.
ARC loans are not designed for start-up businesses.

ARC loans are designed to help businesses experiencing immediate financial hardship for reasons such as: loss/reduction of customer base; increase in cost of doing business; loss/reduction of working capital and/or loss/reduction of short term credit facilities; inability to restructure existing debts due to credit restrictions; loss/reduction of employees (intellectual capital); loss/reduction of major suppliers (major suppliers out of business).
Borrowers whose loans are already severely delinquent or whose past performance or future cash flow indicates that the business is not viable are not good candidates for an ARC loan.

Applying for an ARC Loan:
ARC Loans are provided by commercial lenders and guaranteed by the SBA. Your next step is to contact your lender, who will help you determine if you are a candidate for an ARC Loan.

Questions they may ask include the following:
Does your small business have an established banking relationship?
Has your small business been in operation for a minimum of two years?
Do you have financial statements (balance sheet, income statement, and cash flow statement) which demonstrate your business had a positive cash flow in one of the past three years (or as long as your business has been operating, if less than three years)?
Does your cash flow projection for the next two years indicate sufficient cash flow to meet your current and future loan payments?
Regarding your debts, is your business no more than 60 days past due on any loan (you can be current on all your debt obligations and still qualify for an ARC Loan)?
Is your business suffering an immediate financial hardship? For example: declining sales and revenues; difficulty in making loan payments on existing debt; difficulty in paying employees; difficulty in purchasing materials, supplies, or inventory; and/or difficulty in paying rent and/or other operating expenses.

For more information on ARC loans, visit sba.gov.