I really hate to be so negative, but if we look at a couple simple facts, the entire ARC (America’s Recovery Capital Loan Program) is a $350 million mess waiting to happen. This entire process is flawed from top down. It sounded good on the campaign trail (it always does), but 9 months later, what do we know?
1 – We have about 14 million small businesses (9 employees or less) in the US that collectively employ about 43 million individuals. President Obama is hoping they can help lead the way out of the current recession by providing a minuscule fraction of them small business loans up to $35,000, provided it is used to eliminate other debt.
2 – Many banks do not have the capacity to make these business loans, but more importantly, they do not want to make the loans as there is no ability to charge any fees or generate any income. It sounds great from the podium to say “no fees” but without incentive, it is just a distraction while many banks are trying to heal their balance sheet.
3 – The SBA doesn’t really want to make these small business loans. Publicly they will say differently, but the SBA loans default rate rate in 2006 was 2.4% which jumped to 4.8% in 2007. 2008 saw a record of 12% default which would be a complete disaster for a lending company charging 25% interest. The typical small business loan through the SBA loan program has a current interest are around6%. They (we) cannot afford more losses, regardless of the rhetoric.
So, the SBA can’t afford to make these small business loans, the banks do not want to make the loans, it is not a solution for the business owner’s problem or a solution to the recession. So, why develop and promote the ARC program? Well, it allows our government to show they are responsive and B) the Democratic Party can appeal to the small business owner in advance of the next election. It is a shame they are willing to blow a third of a billion dollars in that pursuit.
So, that is the problem. Lets talk about solutions for business owners who need working capital or a small business loan to really grow their company. My next post will outline four real world options that usually result in a small business loan or working capital: Business Cash Advance, Equipment Lease, Secured Small Business Loan and SBA loan program.
If you have any experience with these programs, I welcome your comments.
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The videos under your business owner link are great, I always benefit from hearing directly from other entrepreneurs without bs and hype.
Not surprised the ARC program is not working, few government programs actually do. But, if I need working capital or a loan, were do I turn?
You can click the links at the bottom of the post and most current post has 4 small business loan options that really work for business owners of almost every credit profile, even in this environment…
We get a lot of great comments about those interviews. Real business owners, real issues, real solutions, nothing better. Glad you enjoyed and benefited…
We have two small biz. (Service and one product we sell).
Our commercial accounts are saying they cannot afford us right now, and our residential accounts are not scheduling.
Are there any areas where we can get some help either by being veteran owned or half woman owned?
Should we consider the ARC since our bank (after a 24 yr excellent relationship) capped our line of credit, and our sales are truly down right now? Have not missed any payments anywhere, but resorting to credit cards just to pay things like Yellow Pages, which are not serving their purpose at the moment.
We’re trying to keep a very young and excellent employee going, plus ourselves…..
LL:
No doubt we are in a difficult time and the real winners will be those who can survive to better days (hopefully 2010?). First, check this post. Second, review your marketing programs, sometimes new accounts are easier than old ones.
Third, review my next blog post that profiles 4 funding sources that really work.
ARC loans are great, just difficult to get. If you have success, please share here so we can learn from your experience.
Todd: Wells Fargo bank (which is my business bank) just wrote me.
They said they will not pay off any credit cards or loan (I assume) unless they are through Wells Fargo bank.
They also told me, in a rather flippant way, that they have approved very few loans.
The applications, near as I can tell, do not say the credit card or loan has to be through your bank in order to be considered to be paid off by the ARC funding. Why would they be asking for documents from any accounts you may owe on? I know it has to be business only accounts, but where does it say it can only be accounts through the lender/bank?
I think this whole thing is a huge confusing mess.
The banker wrote me an extremly flippant Email.
I dont really know what to do.
My spouse wants to pursue the loan, but I am beginning to think it will be a huge waste of time.
Or, is that what they want us to think?
PS Make that “we wil not be paying credit card debt unless it is a Wells Fargo Business Credit Card” and then only for one large transaction of $5000 or more with a supporting invoice.
In other words, they are making up their very own rules, near as I can tell.
Unfortunately it may well be a waste of time. unfortunately, WF has to go through the process as that is politically correct. I think it will be valuable to our readers if you will keep us posted on how this develops.
Anyone else with an experience to share?
These loans will be interest free and fee free, although the banks that are doing the lending for the SBA might have some fees of their own. Each small business will be entitles to one loan from the ARC pool.
bill shor
Saratoga springs
“Each” small business will NOT be entitled to an ARC loan because there is an allocation that will provide loans for only a fraction of small business owners. SBA is specifically not charging fees and not allowing banks to charge customary fees.
Well, we decided not to bother with this.
It isnt going to give us anything to work with, because Wells Fargo is only in it to pay off the line of credit.
We’ll end up with a rather hefty payment every month, but no way to free up cash flow.
If we could pay off a bunch of credit, and go that route, it would be worth it but that isnt what they will even consider.
Hopefully another better plan will come along, without the government involvement!
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