If you’re having trouble making payments on debts, you may be able to get some relief from a new program for small business owners. The U.S. Small Business Administration launched a new loan program created for struggling small companies that will lend them up to $35,000 to pay off loans, credit cards and other debts — interest free.
“If they have too high a payment, this is a way to help them work it out,” says Lawrence Gelburd who teaches entrepreneurship as a lecturer at Wharton.
The program is called America’s Recovery Capital, which, like any government program worth its salt, goes by an acronym: ARC. Borrowers under the program don’t have to start paying off the new loan until 12 months after it is paid out. You can take up to five years to repay.
Sounds great, right? So what’s the catch?
Few SBA lenders are interested in participating in the program, according to several reports, although the principal is guaranteed and the SBA also pays the banks interest — the prime rate plus 2%. But banks may not want to wait a year to get their principal back and some have said the administrative costs make the program not worth the effort.
Still, some small businesses will find banks willing to participate. Not every small company with outstanding debts will be eligible for the program, however, and the following criteria apply:
• Your company must be a viable business and must be facing financial hardship.
• You must have been profitable — or had positive cash flow — for at least one of the past two years.
• You’ll have to show cash-flow projections demonstrating you’ll be able to meet your current and past debts, including paying back the ARC loan.
• You’ll also have to have had a 20% drop in sales, revenue or working capital. The money must be used to pay off debts.
In addition to loans and credit cards, this program covers capital leases and notes payable to vendors.
It’s a good idea to meet the people who work in your local office of the SBA, whether or not you’re successful in securing a loan or even currently seeking one, says Gelburd, a former entrepreneur who advises small companies. Getting to know these folks can pay off because their connections in the financial industry may be helpful to you down the line.
“They know lawyers, accountant and bankers — it’s a fabulous networking opportunity,” he says.
