FAQs
PRESS
OFFICE
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Release Date: Jun 8, 2009 |
Internet Address: http://www.sba.gov/news |
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Frequently Asked
Questions
For Borrowers and Lenders
FOR
BORROWERS:
What is an
ARC Loan?
o The America’s Recovery Capital, or
ARC, loan program 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.
o The ARC loan program is a new,
temporary program authorized by the Recovery Act.
o An ARC loan is a deferred-payment
loan of up to $35,000, to be used for principal and interest payments on
existing, qualifying debt/loans.
- ARC loans are 100%
guaranteed by SBA and have no SBA or lender fees associated with them
(unless the lender must secure collateral as part of the loan).
- There are no interest charges to the borrower.
The SBA will pay the monthly interest at the rate of Prime plus 2% to the
lender on behalf of the borrower. (The current rate is published in
the Federal Register.)
- There is a disbursement period
of up to six months is followed by 12 months with no repayment of the ARC
loan principal. After the 12-month deferral period, the borrower pays back
only the ARC loan principal over a period of five years.
How is “viable” defined and
who defines it? What constitutes “immediate financial hardship”?
o Viable
means the business is an established, for-profit business with evidence of
profitability or positive cash flow in at least one of the past two
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. Also, the
borrower must certify that they are currently no more than 60 days past due on
any loan being paid with an ARC loan and they must have an acceptable business
credit score as determined by SBA.
o Immediate
financial hardship means that there must be evidence to show a change in the
financial condition such as declining sales, frozen credit lines, difficulty
meeting payroll, paying rent, difficulty making loan payments or perhaps
something else. Your lender must analyze and confirm that a hardship
exists. The SBA has several categories for determining hardship status,
such as loss or reduction of revenue in preceding year, increase in business
costs in the preceding year, changes in operating ratios, loss of working
capital or short-term credit lines, and/or inability to restructure debt due to
recent credit restrictions. .
o There are additional eligibility requirements.
Please contact your SBA lender for details.
What loans/debts are
“qualifying” and eligible to benefit from ARC? Can the proceeds be used to make
payments on another SBA-guaranteed loan?
o The only eligible purpose for use of ARC
loan proceeds is to make periodic payments of principal and interest on
qualifying small business loans.
o Small business loans/debts
qualifying and eligible for assistance with ARC loans include:
-
Secured &
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
o ARC loans can not be used to make
payments on another SBA-guaranteed loan, with the exceptions of loans made with
an SBA guaranty after Feb. 17, 2009
Can ARC loans
be used to pay a home equity line of credit and credit card debt?
o ARC loans can be used to pay home
equity lines of credit and credit card obligations if the debt is for business
purposes that meets 7(a) standards. Documentation requirements for assistance
with home equity and credit card debt are stringent. (Contact your SBA lender
for details).
How do I
obtain an ARC loan?
o A small business should talk first
to their current lender about obtaining an ARC loan.
o ARC loans are made by commercial
lenders (ARC loans are not made by the SBA itself).
o Non-SBA lenders can become SBA
lenders in order to make ARC loans.
o SBA district offices can assist
lenders in becoming approved SBA lenders.
Where can I
get more information or speak with someone at SBA about ARC loans?
o For more about ARC loans go to www.sba.gov
Is my
business right for an ARC loan?
o The ARC loan program is intended to
give existing, viable small businesses that are suffering immediate financial
hardship some temporary financial relief so they can keep their doors open and
get their cash flow back on track, retain existing jobs, and ultimately grow in
the future.
o Examples of financial hardships
include declining sales or revenues or difficulties in paying the operating
expenses of the business.
o ARC loans are not designed for new
small businesses.
I’ve been
making my business loan payments on time. Am I still eligible for an ARC
loan? Can I use an ARC loan to establish a line of credit?
o Subject to eligibility and your
lender’s credit criteria, you may be eligible for an ARC loan to pay principal
and interest on your existing small business loan(s), freeing up your income to
pay other operating expenses. For more information, please speak with your SBA
lender.
o ARC loans are for making principal
and interest payments on qualifying small business loans and are not a general
line of credit for a business.
When will ARC
loans be available?
o ARC loans will be available
beginning June 15.
How long do I
have to obtain an ARC loan?
o ARC loans are available through SBA-approved
lenders as long as funding is available or through Sept. 30, 2010, whichever
comes first. For more information on the ARC loans program and eligibility
requirements go to www.sba.gov
FOR LENDERS:
When
will I receive additional guidance and details regarding how to administer ARC
loans? How will I know if my borrower is eligible? How do I know
whether a business is “viable”? How do I know what constitutes “immediate
financial hardship”?
- A detailed Procedural Guide is available at www.sba.gov.
FAQ’s for borrowers provided above contain summary information
Will
lenders be paid interest on ARC loans?
- The lender will bill the SBA, and the SBA will pay
Prime plus 2% to the lender on behalf of the borrower. SBA will publish
the current interest rate in the Federal Register.
When
will the ARC loans be available? When will the SBA begin accepting loans?
- ARC loans will be available and the SBA will begin
accepting applications for ARC loans on June 15.
I
have heard that ARC loans are relatively risky. Will ARC loan defaults
impact my risk rating?
- The SBA understands that ARC loans will carry greater
risk than most SBA loans, and we expect a higher default rate than 7(a)
loans. The SBA will be closely monitoring the ARC Loan portfolio. Performance of a Lender’s ARC loan will be taken into
account as part of a Lender’s contribution to SBA’s mission in determining
the satisfactory performance of a lender..
Where
are the forms I will need for administering the ARC loans?
- Forms are available along with the lender guidance at www.sba.gov
When
can I get trained on providing ARC loans? Where should I go for
questions?
- SBA district offices are ready to begin training
lenders and answering questions. If you are not already an SBA
lender, please contact your local SBA district office: http://www.sba.gov/localresources/index.html
Will
the SBA’s electronic submission method for delegated lenders be available for
the ARC program?
- Yes, delegated SBA lenders should use the electronic
submission system, eTran. Non-delegated SBA lenders will submit
applications to the SBA’s existing 7(a) Loan Guaranty
Processing Center in Citrus Heights, California.
Lola Kress
Public
Affairs Specialist
U.S. Small Business
Administration
North Florida
District Office
7825
Baymeadows Way; Suite 100B
Jacksonville,
FL 32256
(904) 443-1933
Office
(904)
626-2744 Mobile
(202)
481-4188 Fax
www.sba.gov/fl/north
