Answers About ARC Loans
 By B.J. Addington

Many small-business owners have heard about—and have questions about—America’s Recovery Capital loan program. Also known as ARC loans, these are interest-free, deferred-payment loans of up to $35,000. They’re available to established small businesses that are experiencing “immediate financial hardship.” And the loans are guaranteed by the U.S. Small Business Administration (SBA).

The goal of the ARC loan program is simple: Help small businesses survive and get their cash flowing again by providing temporary financial relief.

But, of course, the details aren’t so simple. Here are answers to some of the most common questions being asked about ARC loans.

Who is eligible for an ARC loan?
Your small business must be an established business. You must have financial statements demonstrating it was profitable in one of the past two years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval.

ARC loans are available to viable, for-profit small businesses in the U.S. that have qualifying small-business loans and are experiencing immediate financial hardship.

Examples of qualifying loans may include:

• Credit card obligations for your business
• Capital leases
• Notes payable to vendors or suppliers
• Other loans made without an SBA guaranty, and loans made by or with an SBA guaranty on or after Feb. 17, 2009

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.

The best candidates for ARC loans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship.

What is considered financial hardship?
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
• Loss/reduction of short-term credit
• 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)

How can money from an ARC loan be used?
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 allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs. For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll.

What interest or fees will loan recipients have to pay?
ARC loans are interest-free to the borrower. They carry a 100-percent guaranty from the SBA to the lender, and require no fees be paid to the SBA.

Loan proceeds are provided over a six-month period. 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.

Who provides ARC loans?
ARC loans are provided by commercial lenders and guaranteed by the SBA. If you think you qualify for an ARC loan, you should contact your lender who will help you determine if you are eligible for an ARC loan.

Where can I find out more about ARC loans?
You can get details about the ARC Loan Program at www.sba.gov.

(Posted August 2009)

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