New SBA program offers (some) small businesses relief

For floundering small businesses, June 15th — the day the SBA started handing out the first of 10,000 deferred-payment loans — couldn’t have come soon enough.

The American Recovery Capital (ARC) program was created to help struggling private, for-profit organizations with up to 500 employees. To be considered by the SBA-approved small-biz lenders, companies must meet the following criteria:

• are at least two years old, and
• can prove an immediate financial hardship including a 20% decline in sales, revenues or working capital.

In addition, companies must use the loans for specific small-biz debts including credit-card debt, capital leases and notes payable to vendors.

While the positive aspects of these loans — no fees, no interest (SBA pays the loan’s interest), 12-month deferral period, extra cash flow, etc. — may help some businesses survive, many industry experts feel it may be too little too late.

Some of the negatives and potential problems experts foresee:

• Not enough loans. 10,000 loans is a drop in the bucket compared to the  SBA-estimated 30 million small firms in the country.
• Lenders don’t have to participate. Despite the fact that ARC loans are 100% guaranteed by the SBA, lenders still have to issue the cash without receiving any on the loans capital for a full year. Plus, without fees, lenders will also have to shoulder administrative costs.
• Lack of resources. A large number of lenders may not have the power to handle the high demand for these loans.
• Eligibility issues. Businesses attempting to get a cash-flow boost need to prove profitability (or positive cash flow) in at least one of the past two years, as well as the ability to handle future debs — including the ARC Loan repayment.

Even if your firm isn’t in a position to benefit directly from these loans, maybe some of your customers do — and the extra cash may help them pay your bills.