Will Anyone Be Saved by the SBA's New ARC?

Some banks see the new loan program as too much of a risk.
3 min read
Opinions expressed by Entrepreneur contributors are their own.
On June 15, banks began taking applications for the America's Recovery Capital loan program. The ARC loan is a $35,000, interest-free, deferred-payment loan, fully guaranteed by the Small Business Administration and available to established, viable, for-profit small businesses suffering "immediate financial hardship."

The goal is to help provide some temporary financial relief so small businesses can keep their doors open and put their cash flow back on track.

Banks, however, are hesitant to participate in this program.

According to Investment Watch, a leading economic report, "While banks have ample capital and improved liquidity, their credit standards remain tight. They are lending, but only to A/A+ customers as the regulators/FDIC are still pounding them for their bad real estate and working capital loans."

The banks are nervous about the fact that participating lenders will be required to issue funds without receiving any of the loans' principle for a full year. In addition, the SBA is offering a lower interest rate than other loan programs.

The Coleman Report, a newsletter for banks, states that "the ARC loan program is already being positioned to be a failure, and lenders are going to be the key players behind that failure."

Even the SBA says it expects ARC loans to default at a higher rate than its other programs. Banks will have to absorb the administrative costs of pursuing delinquent loans and liquidating those that default. On the other hand, some banks want to do all they can to inject cash back into the business community, but claim they haven't had time to effectively research the program.

"We don't know if we are going to be able to participate in the ARC loan program," says Jeff Spinelli, SBA loan specialist at Farmers & Merchants Bank. "But we feel an obligation to help our clients in need. We are seriously evaluating it to determine precisely how we could make it available to our customers."

Sarah E. Toffoli, vice president for Wells Fargo Bank, says, "As the No. 1 SBA lender for five years running, we will be participating in the ARC loan program and are seeking to help as many small business owners as possible."

Hayley Matz, SBA press secretary, says, "We have been in communication with lenders since we announced the program, and have been responding to their questions and providing them with initial information since the May 18 announcement. The formal guidance, of course, came out on Monday and since then we have been doing training with lenders all across the country, as well as responding to their individual questions. The program will take a bit to ramp up, and that's expected, but we've also heard that many lenders are ready to begin participating."

As America's small businesses continue to "take on water," the jury is still out on whether the ARC loan program will be a lifeline to thousands of small businesses.

Mark Deo

Mark Deo is author of The Rules of Attraction: Fourteen Practical Rules to Help Get The Right Kind of Clients, Talent and Resources to Come to You. A leading advocate of small business, he has appeared on CBS, FOX Business, NPR and MSNBC and his articles have been published by Business Week, Entrepreneur, Fortune and CNN/Money. He is CEO of the SBA Network, Inc., a small business growth-management firm in Los Angeles, Calif.

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