Federal ARC Loans Aim to Keep Small Businesses Open

Sep 25th, 2009 @ 7:46 AM by Debbie Dragon

The American Recovery and Reinvestment Act launched the ARC loan program in June to provide financial resources to small businesses operating during the recession. Its intent is to keep small businesses operating despite a weakened economy.

The ARC program is funded with federal recovery dollars and operates through the U.S. Small Business Administration. The loans are provided to small businesses and have no interest, as well as deferred repayment. Loans are issued in varying amounts depending on need and eligibility, up $35,000. While the loans cannot be used to start a new business, existing small businesses can use the interest-free, deferred payment loans to pay down their existing debts.

Wisconsin and Minnesota are the top users of the SBA program, with Wisconsin businesses receiving 249 ARC loans and Minnesota businesses leading the way with 323 ARC loans. Karen Mills, a U.S. Small Business Administrator credits good marketing and strong support from lenders helping to boost the program participants in Minnesota.

According to the SBA website, eligibility for ARC loans includes a need for businesses to have existing small business loans and to be experiencing immediate financial hardships:

Your small business must be an established business, have financial statements demonstrating it was profitable in one of the past two years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval. If your business does not meet these criteria, you can discuss your eligibility with your lender. ARC loans are not designed for start-up businesses.

The SBA set aside $375 million for this loan program. The program guarantees loans up to 90% under the American Recovery and Reinvestment Act, up from the normal 75% to 85% guarantee. When this program ends in November, the guarantees will return to 75 to 85%, which will make it harder for small businesses to get approved for the loans.