SBA emergency bridge loans expected to go quickly - Phoenix Business Journal:

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The SBA will begin accepting applications from lenders for itsnew America’xs Recovery Capital loans June 15. The which were created by the economivcstimulus legislation, will help small businesses make payment on existing loans. Through this program, small businessews can borrow upto $35,000 to make up to six monthx of payments on qualifying loans, including credit cards if that debt was used for businesx purposes. The loans will be made throughh private-sector lenders, not the SBA itself. Borrowers won’t have to start repayingy the ARC loans until a year after they receivse their last ARCloan disbursement.
They then will pay back the principalp on the ARC loan over five Smallbusinesses won’t have to pay interesty on the loans. Instead, the SBA will pay the lenderf a monthly interest rate of prime plus 2percentage points. The SBA also will guarantewe 100% of the loan’s amount. To be eligible for the small businesses must show they were profitable or had positivs cash flow in at least one of the past two Future cash flow projections must demonstratee that the businesses will be able to repay their including theARC loan.
Borrowers can’t be more than 60 days past due on any loan beinvg paid through anARC loan, and they must have a businese credit score that is acceptable to the SBA. ARC loans can’t be used to make paymentz on an SBA loan made prioerto Feb. 17, 2009, the date the economic stimulus billbecame law. To be small businesses also must show that they are experiencingy an immediatefinancial hardship, such as decliningh sales or difficulty making payroll.
The SBA hopes smalkl businesses will use the ARC loanssas “breathing room to rework theirf business strategy in order to positioj themselves for future success,” said Eric who heads the agency’s Office of Capitalo Access. Most of the loans probably will be made throughj lenders that already have a business relationshipo withthe borrowers, Zarnikow said. Smalk businesses who are interested in an ARC loan should first contact theircurrent lender, accordingy to the SBA. Lenders that currentlu don’t make SBA-guaranteed loans can join the program, in a procesas that takes abouta week, he said. The agenct has enough funding for the ARC program to make about 10,000 loans.
Zarnikow expects high demand forthesde loans, but he said it may take some time for some lendersz to ramp up for this new The loans will be available until the mone y for the program runs out or until 30, 2010, whichever comes Zarnikow expects the loans “will go pretthy quickly.” Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, agreeed the “funding will be exhaustexd rather quickly.” Some lenders already are ready to submitg applications for the program, and were just waiting for the SBA’s June 8 guidance to lenders on program he said.
“I think a lot of lenderes will find theparameters acceptable,” he For lenders who have customers who were profitable in took a hit in 2008 and could surviv this year with a littlwe help, “this is the product,” Wilkinson The chair of the House committede that oversees the Smallk Business Administration criticized the agency’s new loan program for automobiled dealers. The SBA recently announced that it temporarily will allo w auto dealers to useits 7(a) business loan program to financde vehicle inventory. Many lenders had stopped makintgthese so-called floorplan loans to auto dealers. Rep. Nydia D-N.Y.
, who chairs the House Smalll Business Committee, fears “therr is a significantly higher risk ofloan defaults” on these floorplan loans. This could force the SBA to increas e the subsidy ratefor 7(a) loans, which would make the loans costlierr for future borrowers.