ARC bending curve in commercial loan market

August 7, 2009
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The most discussed commercial lending program among members of the Grand Rapids Chamber of Commerce is the America’s Recovery Capital loan. Also known as ARC, it very well might be the closest thing to free money a business owner can find and a supposedly recovering economy can offer.

ARC surfaced from the 2009 Recovery Act less than two months ago and is designed to help small-business owners make payments on existing debt at a time when their revenue is down.

Commercial lenders offer the loan, which is payment deferred for up to $35,000 and is guaranteed by the U.S. Small Business Administration. The loan is also free of SBA and bank fees, unless the lender has to secure collateral as part of the loan agreement.

“We have had a lot of interest in the SBA’s recent $35,000 small-business loan. We got that information out to members and there was definitely quite a bit of interest in that. So I think the hunger for these types of options is certainly out there,” said Andy Johnston, vice president of public policy and government affairs at the chamber.

Another reason there is so much interest in ARC is that an ARC loan doesn’t have any interest. Instead of borrowers paying an interest charge, the SBA pays the lender monthly interest at 2 percent over prime.

ARC also has a disbursement period of up to six months, followed by 12 months with no repayment of the principal. After the 12-month deferral period, a borrower pays back only the principal and can take up to five years to do so.

The purpose behind ARC is to let borrowers redirect their cash flow from making loan payments to investing in their businesses. The SBA said the best loan candidate is a small business that was profitable in the past but is currently struggling, yet has been making loan payments or is just beginning to miss payments.

“It’s supposed to act as a bridge loan to existing small businesses that are having current immediate hardships to keep their doors open. Those ARC loans are going to be distributed now for about six months,” said Johnston.

An ARC loan can cover multiple kinds of business debt.

“The funds can be used for payment on principal and interest for small-business debt like mortgages, revolving lines of credit, leases, credit cards, payables to vendors, suppliers and utilities. So ARC is a good option that is currently out there, and we’re getting quite a bit of interest in it from members,” said Johnston.

Interested business owners should first contact their lender before touching base with the SBA. The SBA said ARC loans will be offered for as long as funding is available or until Sept. 30, 2010, whichever comes first.

The chamber held a financing workshop in early March, before ARC was rolled out, that highlighted government-backed lending programs along with those offered by commercial banks and credit unions in the area. Fifty-seven business owners turned out for the event, indicating that members had a keen interest in hearing what type of lending options were available to them.

If members have experienced difficulty in obtaining credit, Johnston said the chamber staff hasn’t heard those horror stories.

“We’re not really hearing a lot of negatives or a lot of complaints, based upon the feedback we’ve been receiving.”

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