When the economy tanked, small business owners seeking or using financing were hurt badly. Business owners found financing harder and harder to come by, and even some who were approved for loans fell into trouble when their banks hit bottom and could not come up with the financing they had promised. A new SBA loan program set up as part of the overal economic stimulus program is designed to help these businesses get through the recession. See the full article for details:

The Small Business Administration (SBA) has always offered help to small business owners in the form of guarantees on qualifying loans. The SBA partners with a bank and guarantees a portion of a loan given to a qualifying business. The America’s Recovery Capital program extends the reach of the SBA with $255 million in additional funds targeted at businesses hit hard by the recession.

The ARC loan program offers up to guarantee loans of up to $35,000 to qualifying small businesses. The relief loan is 100 percent guaranteed by the SBA, which makes the loan a safer risk for the lender. The business owner benefits from actually receiving needed financing, usually at a lower cost. The SBA charges no fees for these loans, and the low risk causes most lenders to lower their fees as well.

ARC loans are given to viable, for-profit U.S. small businesses that are experiencing an immediate financial hardship. These businesses must be established, have been profitable in at least one of the past two years, and have projections of future profitability that will be sufficient to pay the loan over the next two years. The loans are not designed for start up businesses. Businesses need to apply for an ARC loan before they become severely delinquent on any other debts, as this can hurt their eligibility. Payments for the loan can be spread over five years.

While the loan program is promising and the government has offered a significant amount of money to guarantee these loans, some businesses are finding it difficult to locate participating lenders. The lender does not stand to gain significantly from lending a relatively small amount of money and spreading the repayment over five years. Also, the loan program is still relatively new, and many banks are hesitant to jump on the bandwagon until they fully understand the process. Add to that the fact that only about a third of the banks in America do any form of SBA lending, and the number of prospective banks drops significantly.

However, while their numbers may be small, there are banks that participate in the ARC program, and that is good news for business owners who are facing short-term struggles. Rather than shutting their doors, they can turn to the bank for help, with assistance from the SBA.