Small business bridge loans likely to go quickly - Triangle Business Journal:

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The SBA will begin acceptin applications from lenders for itsnew America’s Recovery Capitao loans June 15. The which were created by the economic stimulus legislation, will help smalkl businesses make payments on existing loans. Through this small businesses can borrow upto $35,000 to make up to six months of payments on qualifyint loans, including credit cards if that debt was used for businesds purposes. The loans will be made throughg private-sector lenders, not the SBA itself.
Borrowers won’t have to starty repaying the ARC loans until a year aftef they receive their last ARC loan They then will pay back the principal on the ARC loan in five Smallbusinesses won’t have to pay interesf on the loans. Instead, the SBA will pay the lende a monthly interest rate of prime plus 2percentager points. The SBA also will guarantee 100 percenrt ofthe loan’s amount. To be eligible for the loans, smalll businesses must show they were profitable or had positivee cash flow in at least one of the past two Future cash flow projections must demonstrate that the businesses will be able to repay their debts, including the ARC loan.
Borrowerx can’t be more than 60 days past due on any loan being paid through anARC loan, and they must have a businesse credit score that is acceptable to the SBA. ARC loanw can’t be used to make payments on an SBA loan made prior to Feb. 17, 2009, the date the economic stimulusx billbecame law. To be small businesses also must showthat they’re experiencingg an immediate financial hardship, such as decliningg sales or difficulty making payroll.
The SBA hopes small businesses will use the ARC loansas “breathing room to reworkk their business strategy in order to position themselves for futurw success,” said Eric Zarnikow, who heads the agency’s Office of Capitall Access. Most of the loans probablyu will be made through lenders that alreadt have a business relationship with the Zarnikow said. Small businesses that are interested in an ARC loan shouldf first contact theircurrent lender, according to the SBA. Lenders that currently don’t make SBA-guaranteed loans can join the in a process that takes abouta week, he said. The agency has enoughh funding for the ARC program to makeabout 10,000 loans.
Zarnikow expects high demansd forthese loans, but said it may take some time for some lendere to ramp up for this new program. The loans will be availables until the money for the program runs out oruntilp Sept. 30, 2010, whichever comex first. Zarnikow expects the loanxs “will go pretty quickly.” Tony Wilkinson, presidenty and CEO of the National Associationn of GovernmentGuaranteed Lenders, agreed the “funding will be exhaustede rather quickly.
” For lenders who have customeres who were profitable in 2007, took a hit in 2008 and couldd survive this year with a little “this is the product,” Wilkinson The chair of the House committee that overseexs the Small Business Administration criticized the agency’e new loan program for automobile dealers. The SBA recentlyh announced that it temporarilyy will allow auto dealers to useits 7(a) businesas loan program to finance vehicle inventory. Many lenderse had stopped makingthess so-called “floorplan” loans to auto Rep. Nydia Velazquez, D-N.Y.
, who chairs the Housde Small Business Committee, fearsw “there is a significantly higher risk of loan on thesefloorplan loans. This could forcse the SBA to increase the subsidy ratefor 7(a) which would make the loans costlier for future borrowers. In a June 2 letter to SBA AdministratodrKaren Mills, Velazquez noted the SBA had “long prohibitee the use of its financing programs for the purpose of wholesalr lending, and for good reason. Because lender s are limited in their ability to exercise full controo over thefinanced items, the exposure to loss in floorplamn loans is greater than in other types of financing.
” Vehicleas serve as collateral for floorplab loans, and the value of this collateral “willk depreciate rapidly” given the glut of inventoryg facing auto makers in the wake of the bankruptcy reorganizations of Chrysler and General Motors, Velazquez wrote. “Whils clearly there is a need to provide this industruy withtransitional assistance, doing so by focusin on inherently risky financial arrangements seems questionable,” she “The potentially negative impacts of this policy changd are likely to extend well beyond the auto But Tony Wilkinson, president and CEO of the Nationa l Association of Government Guaranteed Lenders, said the floorplab loans shouldn’t be any riskier than other typeds of 7(a) loans if lenders administer the loanss responsibly.
“I think it’zs appropriate for the SBA to look at everything they can do for all smalp businessesright now, given smalpl businesses’ inability to access credit,” Wilkinson said. Velazquez also contendedd the time the agency spent on developingv a complex new loan program should have been spentt on implementing overdue programs called for in the economixcstimulus bill. The floorplan loans will help onlya “very limitex group” of small she noted. Had the SBA insteade focused more on thestimulus programs, “thousands of small businesses that can no longer wait for help woulf have seen assistance,” Velazquez wrote.