America's Recovery Capital Program

An emergency loan program for small businesses which US has announced since Feb but has yet to implement. It essentially provides 100%-guaranteed, interest-free loans to small businesses for them to pay up their previous loans and interests on these loans (which are relatively high and causing many businesses to be struggling with the payments). This eases the financial difficulties of debt-laden but viable businesses especially. Interesting program, which I've been keeping up with:

1. SBA readies emergency biz loans
Agency has 15 days to create guidelines for $255 million emergency lending initiative approved by Congress.
By Stacy Cowley, small business editor
Last Updated: February 19, 2009: 5:30 PM ET

NEW YORK (CNNMoney.com) -- Small businesses owners struggling to keep up with their bills may see some relief from a new $255 million emergency loan program authorized this week as part of the economic recovery bill.
Congress is pushing for the money to start flowing fast: It gave the Small Business Administration just 15 days to issue guidelines for the brand-new program.
Called the Business Stabilization Program, the initiative will offer loans of up to $35,000 that are essentially interest-free. The loans will only be available to companies that already have bank-issued business loans - Congress wants the new loans to be used to make interest payments and pay down principal on existing debt.
The loans can be used to make payments for up to six months, and no repayment on them will be due for a year. Businesses must fully repay their stabilization loan within five years.
The loans won't be coming directly from the SBA. Instead, the agency will offer a 100% guarantee - something it has never done before - to banks that issue the loans. If the business owner defaults, the SBA will pay off the debt.
The SBA will also fully subsidize the interest on the loans for their entire duration, making them low-cost for business owners and largely risk-free for banks.
Entrepreneurs ready to race out and apply for a loan will need to be patient a bit longer, though. Faced with a tight deadline to create an entirely new program, the SBA is still working out the details.
"We want to get everything in the bill in place as quickly as we can," said SBA spokesman Mike Stamler. "We're doing the best we can."
The SBA hasn't started discussions with banks about how the program will work, but lenders expressed cautious optimism that it will help strapped small businesses.
"We have plenty of customers that would be interested in that type of loan," said Michael Downes, chief lending officer of Unity Bancorp (UNTY) in Clinton, N.J. "We just have to guard against throwing good money after bad."
This new programs is one of the ones Congress wants action on the quickest. It gave the SBA less than three weeks to issue emergency regulations for it.
For the stabilization loans, Congress allocated $255 million to fund the program through September 2010. Since that amount covers only the costs and subsides of the program, it can be used to fund several billion in total loan volume; the SBA is still working out the formulas to calculate how far the cash will stretch.
Only banks already certified to participate in the SBA's loan guarantee programs will be eligible to make stabilization loans. But the agency expects the loans themselves to be available to any small business customer at participating banks, regardless of whether or not the customer's existing loan was actually made through the SBA's guarantee program. (To find out whether your bank is an SBA lender, click here and go to the SBA's resource page for your geographic area.)
As the SBA pulls together its guidelines, lenders and business owners are eager to tap the new line of capital.
"One of the reasons that we were proactive in getting involved in the SBA was because we saw the economy beginning to weaken," said One Georgia Bank's Lewis. "Any time the economy weakens, it's going to be the small businesses that will lead the country out of an economic spiral."

2. Emergency biz loans: What qualifies
The SBA's forthcoming loan-relief program can't be used to pay down existing SBA loans -- but past borrowers will still be eligible for help with other debts.
By Stacy Cowley, CNNMoney.com small business editor
Last Updated: March 20, 2009: 4:49 PM ET

NEW YORK (CNNMoney.com) -- The Small Business Administration is still drawing up guidelines for its forthcoming emergency loans program, a stopgap measure intended to shore up small businesses struggling to keep up with payments on existing debt. But the agency this week confirmed an unexpected twist: Businesses with current loans backed by the SBA won't be able to use the new loans to cover payments on their existing SBA debt.
The upcoming program, tentatively dubbed the "America's Recovery Capital" (ARC) loan program, is a measure mandated by last month's stimulus bill. The bill requires the SBA to create a new "business stabilization" program to back loans of up to $35,000 to small businesses "experiencing immediate financial hardship." The loans are intended to be used to make interest and principal payments on a "qualifying small business loan" for up to six months.
In several announcements this week, SBA officials said that SBA-backed loans made before the stimulus bill's passage on Feb. 17 won't be eligible for ARC loan relief. The reason: The American Recovery and Reinvestment Act, the stimulus bill, forbids it. A provision Congress wrote into the bill explicitly prevents the new stabilization loans from being used to pay down SBA-backed loans made before the bill's enactment.
A staffer with the House Small Business Committee said that restriction was mandated by the Congressional Budget Office to comply with pay-as-you-go prohibitions against increasing the federal deficit through new direct-spending measures.
A representative from CBO was not immediately available for comment.
Still, both the House Committee and the SBA emphasized that businesses with existing SBA-backed loans can still apply for the new ARC loans. The only catch is that they'll have to use their new loans to pay down debt other than their SBA loan.
"Private loans made for any legitimate business purpose -- including credit card debts, bank loans and real-estate loans -- would be eligible for the program," the House Committee staffer said. "The Committee is also pushing the SBA to work with borrowers on loan modification and forbearance to provide relief to small business borrowers who have SBA-backed loans."
Talk back: Have you had trouble getting a loan?
The new ARC loans will be offered on extremely compelling terms for both business owners and lenders. The loans will come directly from banks, but the SBA will offer the banks a 100% guarantee on the loans -- something the agency has never done before. If the business owner defaults, the SBA will repay the bank for the full value of the loan.
The SBA will also fully subsidize the interest on the loans, making them essentially cost free for business owners. No payment on the loans will be due for a year, and businesses will have up to 5 years to fully repay them.
The SBA is still creating the guidelines for the new ARC loans program and doesn't yet know when the funds will be available.
"The details have not been worked out yet," SBA spokesman Michael Stamler said earlier this week. "It a very complex undertaking, but we are hurrying as fast as we can, consistent with making sure we have a thoughtful, effective program in place."
Congress allocated $255 million in the stimulus bill to fund the ARC program. That money will be used to pay for the program's loan guarantees and interest subsidies, so the actual lending volume it will support will be higher. The SBA is still working out the formulas to calculate how far the ARC funding will stretch.
It's also still determining what businesses will qualify for aid. The ARC loans will come directly from banks, and in a Web presentation this week, an SBA official said that only "viable" small businesses will be eligible.
That's an important caveat for a program that offers banks complete immunity against loans going bad. The SBA is already trying to cope with soaring default rates for its traditional loan programs, which only ensure banks against losses on a portion of their losses on qualified small business loans.
"A 'viable' small business is a business that has a demonstrated earnings history and proven record for success that may just need a little extra help to get through a short-term downturn," Eric Zarnikow, the SBA's associate administrator for capital access, said during the presentation. "We will be issuing additional guidance to lenders when the ARC program is released."
While many aspects of the program remain nebulous, small business advocates say it can't arrive soon enough.
"This stimulus, while small, will clearly help many existing small business borrowers to weather the storm," said Edward Tuvin, a former SBA lender who is now managing director of factoring firm Creative Capital Associates in Silver Spring, Md."It sounds like a good plan, but where is it, and why is it so difficult to put it into action?" asked Martin, the owner of Nu Wray Inn, a bed & breakfast in Burnsville, N.C.
Martin, who asked not to have his last name used because he's currently consulting part-time for a bank, has been hit hard by rising operating costs at the same time as sales dry up. To buy Nu Wray Inn three years ago, he took out a private bank loan, one not backed by the SBA. That loan is currently at a 10% interest rate, and the bank has turned down Martin's requests for a modification. "I'm taking money from my other job to make those payments. If it wasn't for that, my business would be bankrupt," Martin said. The SBA's ARC program could help his business -- if it gets moving in time."It frustrates me a lot to see banks and auto makers and these other companies getting a quick response, and small business as a whole getting a very slow response," he said. "The inn I run has been operating since 1833. If I go out of business, that's a hardship to my local community. I'm right in the middle of the town square."

3. Audit: Small biz stimulus relief months behind schedule
The hotly awaited America's Recovery Capital emergency loans program is more than a month overdue, but the SBA says it will have guidelines out to banks within weeks.
By Stacy Cowley, CNNMoney.com small business editor
Last Updated: April 16, 2009: 7:23 PM ET

NEW YORK (CNNMoney.com) -- More than a month after President Barack Obama pledged "aggressive action" to help small businesses struggling to survive the recession, key government relief efforts are running behind schedule, an audit report released Thursday points out.
Plans from the Small Business Administration for an emergency lending program authorized in February's stimulus bill are nearly six weeks overdue, and new programs aimed at strengthening the secondary market for SBA loans won't be operational until June, three months after their deadline, according to a report from the Government Accountability Office.
Congress set extremely ambitious timetables for the new programs it laid out in the American Recovery and Reinvestment Act. The bill gave the SBA just 15 days to issue guidelines for a brand-new secondary market guarantee authority and for a "business stabilization" program that will back bank loans of up to $35,000 for small businesses struggling to make payments on existing debt. Congress also asked the GAO to report back in 60 days on the SBA's progress, but so far, there's little progress for the GAO to audit.
The SBA, whose new administrator, Karen Mills, took office less than two weeks ago, has two stimulus provisions up and running. On March 16, it began waiving fees for participation in its lending programs, and it increased to 90% the portion of qualifying small business loans that it will insure for banks against default. Those moves are intended to increase bank lending to small companies by making the loans safer and less expensive.
But the provision most eagerly awaited by small businesses, the new $35,000 stabilization loan program, is still on the drawing board. To explain to GAO the assortment of missed deadlines, SBA officials pointed to the complexity involved in creating entirely new programs very different from those the agency has previously overseen.
"SBA officials said that the array of requirements under [the Recovery Act] and associated rulemaking deadlines have placed a strain on the agency's existing staff and other resources," the GAO wrote in its report. "Similarly, officials from some trade groups representing lenders and broker-dealers expressed concerns that SBA lacked staffing necessary, particularly in the Office of Capital Access, to carry out [the] provisions."
There's hope on the horizon, though: An SBA spokesman says the emergency loans program will be up and running within weeks.
"I don't have a specific date, but it's weeks, not months," SBA Assistant Administrator Jonathan Swain said Thursday. "We know that there's a lot of interest in the program, and that it can be very helpful to a lot of small businesses around the country."
Dubbed "America's Recovery Capital" (ARC), the program will offer banks a 100% guarantee on money lent to "viable" small businesses struggling to make payments on existing debt, including credit cards, commercial mortgages and previous loans. Businesses will be able to borrow up to $35,000 and can use the money to make debt payments for up to six months. The SBA will fully subsidize the interest on the loans, making them essentially cost-free for borrowers.
Those extremely attractive terms have small business owners clamoring for details on how to apply. Mack Sullivan, founder and publisher of Due South Publishing in St. Simons Island, Ga., says he's been to his local SBA and his bank to press for information, but found no one with any knowledge of how the ARC program is progressing.
"The frustration is, where does it stand? When can we expect to learn more? I thought there was a deadline set by Barack Obama," he said. "It's one thing to not meet deadlines, but it's another to just go dark and leave everybody wondering."
Talk back: Could you use an ARC loan?
Founded six years ago, Due South Publishing produces local guide books that are distributed in hotels and tourist hot spots around St. Simons Island. The company is generally cash-flow positive, Sullivan said, but it hasn't been immune from the recession's effects. Sullivan has taken out home-equity loans and borrowed against credit cards to finance his four-person venture.
"A $35,000 loan would allow us to pay off some credit cards, not worry about our credit lines being cut, and ride through this economic downturn for another 12 months," Sullivan said. "As an entrepreneurial small business person, I wouldn't normally find myself waiting for something the government is doing, but these are such extraordinary times."
New business owner Erika Sanchez is also looking for the kind of immediate help the ARC loans are designed to provide. Sanchez and her husband opened a design and printing business, Pronto Graphic Designs, in Dallas in January. Sales have been surprisingly strong: Sanchez already has a client roster of about 40 local businesses and enough work that she'd like to hire an additional designer and expand her office space. Working capital is the obstacle.
"There's more equipment that we need to buy," she said. "We have a lot of work, and it's slowing us down that we don't have the machinery for it."
Congress is pushing for action as fast as possible from the SBA. "The single biggest challenge facing most small businesses right now is access to affordable credit, which is why it is vital that the SBA get these programs up and running immediately," Rep. Nydia Velázquez, D-N.Y., the chairwoman of the House Committee on Small Business, said in response to the GAO report. "With every day that goes by, more small businesses are being forced to close their doors."
The SBA is working "diligently and expeditiously" to implement all of the Recovery Act provisions, SBA Administrator Karen Mills said in a written response to the GAO's report.
"A number of these programs require sophisticated financial modeling and/or legal documentation, and present challenging policy or structural issues, and therefore require additional time to implement," Mills wrote.
While the GAO noted the SBA's blown deadlines, it included no criticism of the agency's efforts or recommendations for improvement.
"In this case we did not see clear criteria for making recommendations," report author William Shear, GAO director of financial markets and community investment, said in an interview after the report's release. For years the GAO has been issuing audits drawing attention to SBA staffing shortfalls and slipshod management of various programs the agency is tasked with overseeing.
"We think our major contribution here was to provide information to Congress and others on what the SBA's challenges are that have affected the agency's inability to meet the schedule Congress set," Shear said.