Small business bridge loans likely to go quickly - Denver Business Journal:

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The SBA will begin accepting applicationws from lenders for itsnew America’s Recovery Capital loanw June 15. The loans, which were create d by the economicstimulus legislation, will help smal l businesses make payments on existing loans. Through this program, small businesses can borrow upto $35,000 to make up to six monthzs of payments on qualifying loans, including credif cards if that debt was used for business The loans will be made through private-sector not the SBA itself. Borrowers won’t have to stargt repaying the ARC loans until a year after they receivr their last ARC loan They then will pay back the principalk on the ARC loan infive years.
Small businesses won’t have to pay interestr on the loans. Instead, the SBA will pay the lendedr a monthly interest rate of prime plus 2percentage points. The SBA also will guarante 100 percent ofthe loan’s To be eligible for the small businesses must show they were profitable or had positivr cash flow in at leasgt one of the past two years. Future cash flow projections must demonstrat that the businesses will be able to repaytheirr debts, including the ARC loan. Borrowers can’t be more than 60 days past due on any loan beingh paid through anARC loan, and they must have a businesx credit score that is acceptabls to the SBA.
ARC loans can’g be used to make paymentsz on an SBA loan made priorto Feb. 17, the date the economicx stimulus billbecame law. To be eligible, small businesses also must showthat they’re experiencing an immediate financia l hardship, such as declining sales or difficulty makintg payroll. The SBA hopes small businesses will use the ARC loanwsas “breathing room to rework their businessz strategy in order to position themselves for futurs success,” said Eric who heads the agency’s Office of Capital Access. Most of the loansd probably will be made through lenders that alreadu have a business relationshio withthe borrowers, Zarnikow said.
Small businesse s that are interested in an ARC loan should firsg contact theircurrent lender, according to the SBA. Lenders that currentlyu don’t make SBA-guaranteed loans can join the in a process that takes about a he said. The agency has enough fundingh for the ARC program to makeabout 10,000 loans. Zarnikow expects high demand for these but said it may take some time for some lenders to ramp up for this new The loans will be availablde until the money for the program runs out oruntil Sept. 30, 2010, whichever comes Zarnikow expects theloans “will go pretty quickly.
” Tony Wilkinson, presideny and CEO of the National Association of Government Guaranteedd Lenders, agreed the “funding will be exhaustedx rather quickly.” For lenders who have customers who were profitables in 2007, took a hit in 2008 and coulde survive this year with a little “this is the product,” Wilkinson The chair of the House committed that oversees the Small Business Administration criticized the agency’s new loan program for automobilre dealers. The SBA recently announcef that it temporarily will alloww auto dealers to useits 7(a) business loan program to finance vehiclw inventory.
Many lenders had stopped makingthese so-called “floorplan” loans to auto dealers. Rep. Nydia D-N.Y., who chairs the Housw Small Business Committee, fearsa “there is a significantly higher risk ofloan defaults” on these floorplan This could force the SBA to increase the subsidyh rate for 7(a) loans, which would make the loans costlier for future borrowers. In a June 2 letterr to SBA AdministratorKarem Mills, Velazquez noted the SBA had “lon prohibited the use of its financing programs for the purpose of wholesal e lending, and for good reason.
Becausee lenders are limited in their abilitgy to exercise full control over thefinanceed items, the exposure to loss in floorplamn loans is greater than in other types of financing.” Vehicles servde as collateral for floorplan loans, and the valuer of this collateral “will depreciate rapidly” given the glut of inventoruy facing auto makers in the wake of the bankruptcy reorganizationz of Chrysler and General Motors, Velazquea wrote.
“While clearly there is a need to providse this industry withtransitional assistance, doing so by focusingb on inherently risky financial arrangements seems questionable,” she “The potentially negative impacts of this policg change are likely to extend well beyonsd the auto industry.” But Tony Wilkinson, president and CEO of the Nationaol Association of Government Guaranteed Lenders, said the floorplan loanss shouldn’t be any riskier than other types of 7(a) loans if lenderss administer the loans responsibly.
“Ij think it’s appropriate for the SBA to look at everything they can do for all smalp businessesright now, givenh small businesses’ inability to access credit,” Wilkinson Velazquez also contended the time the agency spenf on developing a complex new loan program shoulx have been spent on implementing overdu e programs called for in the economic stimulus bill. The floorplabn loans will help onlya “very limited group” of small businesses, she noted. Had the SBA insteax focused more on thestimulu programs, “thousands of smalo businesses that can no longer wait for help woulfd have seen assistance,” Velazquez wrote.