Ask SmallBiz: Getting Loan Approval

October, 2009

Q: I’m a small business owner and I’ve heard about the new ARC loans. How do I get approved for these loans?

A: For small-business owners, the American Recovery Capital loan seems like a silver bullet, the solution to many problems plaguing their businesses now. This new loan is designed to give viable small businesses suffering immediate financial hardship short-term financial relief from certain business debts so they can keep their doors open, maintain jobs and get their cash flow back on track.

Congress created the ARC loan with a specific purpose: easing the financial burden of established, viable small businesses. While ARC loans are not for startups, existing firms may find this six-month capital infusion will help get them through the downturn. However, the eligibility and qualifications for this loan require significant documentation from borrowers.

Here’s how it works: The loan – made by a participating SBA lender – is a deferred-payment loan of up to $35,000 to use for principal and interest payments on existing, qualifying business debt. ARC loans are 100 percent guaranteed by SBA and have no fees unless your bank requires collateral. Disbursement may be over six months followed by 12 months with no repayment of the ARC principle. Borrowers pay no interest with a five-year term for payments.

A viable business is a business that’s been an established, for-profit business with evidence of positive cash flow in at least one of the past two years. An analysis of financial statements that you provide in your application must verify this requirement. Future cash-flow projections for two years are also required to show that you’ll be able to generate enough revenue to meet current and future debts. Prospective borrowers must certify that they are no more than 60 days past due on any debts to be paid with ARC proceeds. An acceptable business credit score is also required.

Immediate financial hardship means declining sales, frozen credit, or diffi-culty making loan payments, payroll or other business debts. Your lender will need evidence of the change in financial conditions from you, including your regular financial reports and notes

What is a qualifying small-business debt? Conventional mortgages, term and revolving lines of credit, capital leases, notes payable and credit-card obligations for small-business purposes may all be accepted, but you must be able to provide backup information. Contact SBA or go to www.sba.gov for more details, forms and templates.

Small businesses that don’t qualify or need money for working capital or other expenses besides existing debts should look at the enhancements of other SBA loans by the Recovery Act. Fees are waived on most SBA loans – from the smaller Community Express up to the Fixed Asset 504 program –and that saves you money.

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