Small businesses are still struggling to get their hands on a share of the stimulus package passed in February.
A new program from the Small Business Administration could help them grab some of those stimulus dollars while easing creditors off their backs at the same time.
America's Recovery Capital or ARC loans are available in amounts of up to $35,000 for small businesses that are at least two years old, and must be used to pay down existing debt. In order to be eligible, a business must have been profitable in at least one of the last two years, facing hardship, and able to project the earnings and ability to make good on current and future loan payments.
The prevailing criticism potential lenders have for the ARC loan is that an interest rate of only 2 percent above prime on $35,000 simply isn't worth banks' time. The daunting paperwork and requisite man-hours, they say, outweigh the nominal return.
The interest, however, is not the only reward the ARC loan brings to the table for business owners. Because the ARC loan must be used to pay off preexisting debts, banks could lend only to customers who will hand the money right back as payment on an outstanding debt, in a revolving door-like plan to both recoup outstanding loans and earn interest simultaneously.
"This program makes it very difficult for banks to do the right thing, even if they wanted to," says Neal Gordon, principal of Business Borrowers Alliance, a company that helps usher businesses through the ARC loan process, which the SBA says carries about as much paperwork as the popular 7(a) loan program that is available up to $2 million.
If some lenders find this two-way gain a reason to include themselves in the program, others see it as a good excuse to exclude loan-seekers who don't already carry a debt with the bank, which Gordon says will leave many companies out in the cold.
"This is just an interim solution to help small businesses in a very tough time," says Haley Matz, press secretary for the SBA.
Despite lingering doubts about the overall efficacy of the program, Gordon, agrees that anything helps. "You're talking crumbs to starving people," he says. "It will help certain businesses."
And for those businesses that can manage to receive one of these 100 percent-guaranteed loans, any amount of money is sure to help. The loans will be distributed over a six month period and repayment will not begin until a year after the final installment. From there, borrowers will have up to five years to repay the full amount.