SBA Releases ARC Loan Guidelines to Banks & Borrowers

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On Monday, June 8, the U.S. Small Business Administration released details about the America's Recovery Capital (ARC) Loan Program, which is designed to give "viable" small businesses suffering "immediate financial hardship" some temporary financial relief so they can keep their doors open and get their cash flow back on track. ARC loans will be available, and SBA will begin accepting applications from lenders, beginning June 15. The loans will be available through SBA-approved lenders as long as funding is available or through September 30, 2010, whichever comes first. And, according to Reuters, SBA expects 10,000 ARC loans to be handed out over the next 15 months with a loan cap of 50 per week to each SBA-approved lending institution, and a maximum of 1,000 loans per lender.

A new, temporary program authorized by the American Recovery and Reinvestment Act of 2009, ARC loans offer a deferred-payment of up to $35,000 to be used for principal and interest payments on existing, qualifying debt/loans. The loans are 100 percent guaranteed by SBA and have no SBA or lender fees associated with them. There is a disbursement period of up to six months followed by 12 months with no repayment of ARC loan principal. After the 12-month deferral period, the borrower pays back only the ARC loan principal over a period of five years.

"We are urging any ABA member with an interest in pursuing an ARC loan to put the wheels in motion now," said ABA CEO Oren Teicher. "It is possible that your local banker did not have ARC information last week, but now they do, so we suggest contacting your banker as soon as possible, especially since there is a limit to how many ARC loans the government will provide borrowers on a weekly basis."

Teicher also recommended that bookstores with questions regarding the loan process contact a local SCORE counselor. SCORE, an SBA resource partner, offers counseling to small business owners and is free to join. At SCORE's homepage, a bookseller can simply type in "SBA loan," choose their state from a drop-down menu, and they will be provided with a list of SCORE mentors who will help guide them through the loan process.

SBA has a list of eligibility requirements for a business looking for an ARC loan. To be a so-called viable business, the loan applicant must be an established, for-profit business with evidence of profitability or positive cash flow in at least one of the past three years. An analysis of financial statements going back three years is also used. Future cash flow projections based on reasonable growth going out two years should show that the business will be able to meet current and future debt obligations, including future repayment of the ARC loan.

Moreover, "immediate financial hardship" means there must be evidence to show a change in the financial condition of the business, such as declining sales, frozen credit lines, difficulty meeting payroll, paying rent, difficulty making loan payments or perhaps something else.

Small business loans/debts qualifying and eligible for assistance with ARC loans include:

  • Secured and unsecured conventional loans (mortgages, term and revolving lines of credit)
  • Capital leases
  • Notes payable to vendors/suppliers/utilities
  • Development Company Loan Program (504) first mortgage loans
  • Credit card obligations for business purposes

However, ARC loans cannot be used to make payments on another SBA-guaranteed loan, with the exceptions of loans made with an SBA guarantee after February 17, 2009. (For the complete details, see ARC loan program FAQ.)

SBA recommends that small business owners that are interested in an ARC loan contact their lenders who will help them determine if they qualify for an ARC Loan.

SBA outlined some of the questions a banker may ask when applying for an ARC loan:

  • Does your small business have an established banking relationship?

  • Has your small business been in operation for a minimum of two years?

  • Do you have financial statements (balance sheet, income statement, and cash flow statement) that demonstrate your business had a positive cash flow in one of the past three years (or as long as your business has been operating, if less than three years)?

  • Does your cash flow projection for the next two years indicate sufficient cash flow to meet your current and future loan payments?

  • Regarding your debts, is your business no more than 60 days past due on any loan? (You can be current on all your debt obligations and still qualify for an ARC Loan.)

  • Is your business suffering an immediate financial hardship?  For example:
             Declining sales and revenues;
             Difficulty in making loan payments on existing debt;
             Difficulty in paying employees;
             Difficulty in purchasing materials, supplies, or inventory; and/or
             Difficulty in paying rent and/or other operating expenses.

Importantly, SBA notes that banks and credit unions that are not currently SBA lenders can become SBA lenders in order to make ARC loans.

Booksellers with questions about the ARC Loan Program can speak directly to an SBA customer service representative at (866) 947-8081 from Monday through Friday during the hours of 8:00 a.m. to 9:00 p.m. (Eastern Time).

For an overview on the small business programs included in the federal stimulus package, visit the following links:

And more information on the ARC loan program is available at

To locate a regional SBA office near you, go to

For more about SCORE, and to locate a SCORE counselor, go to

And, finally, booksellers who would like to share their experiences with the ARC loan program with ABA should contact David Grogan, the association's public policy liaison. --David Grogan