Federal Loan Program for Businesses Starts June 15

Companies looking for financial relief may look to the U.S. Small Business Association's (SBA) America's Recovery Capital loan program, which begins June 15.

Small business owners struggling to keep their companies afloat in the wake of a crippling economic recession may find some comfort in the knowledge that beginning Monday, June 15, a loan program called America's Recovery Capital will be available to small business owners. The ARC loan program was enacted as part of the government's $700 billion recovery package.

The program, run through the Small Business Association, can provide up to $35,000 in short-term relief for viable small businesses facing "immediate financial hardship" to help ride out the current economic turbulence and return to profitability. Each small business is limited to one ARC loan. The SBA said some SBA lenders will offer ARC loans as long as funding is available or until Sept. 30, 2010, whichever comes first.

ARC loans 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. The SBA said 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.

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 provide a rapid infusion of capital to small businesses to assist with making payments of principal and interest on existing debt. 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, the SBA suggests.

The SBA includes a list of examples of qualifying loans such as business credit card obligations, 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.

It remains to be seen whether the loan program will improve the small business community's view of the government's efforts. While a survey from online payroll company SurePayroll found small business optimism rose in May, an April survey by the company suggests small business owners would rather see the government cutting taxes on midmarket companies instead of injecting billions of dollars into the economy. The survey found three out of four small business owners say they would rather see the government enact simple tax cuts than the recent stimulus initiatives.