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

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The SBA will begin accepting applications from lenders for itsnew America’sx Recovery Capital loans June 15. The loans, which were created by the economidcstimulus legislation, will help small businessees make payments on existing loans. Through this small businesses can borrow upto $35,000 to make up to six monthz of payments on qualifying loans, including credit cardzs if that debt was used for business The loans will be made througjh private-sector lenders, not the SBA itself. Borrowerz won’t have to start repaying the ARC loans until a year after they receiv their last ARCloan disbursement. They then will pay back the principap on the ARC loan infive years.
Small businessea won’t have to pay interest on the loans. the SBA will pay the lender a monthlyg interest rate of prime plus 2percentagd points. The SBA also will guarantee 100 percent ofthe loan’sw amount. To be eligibl for the loans, small businesses must show they were profitablwe or had positive cash flow in at least one of the past two Future cash flow projections must demonstrate that the businessesx will be able to repay their including theARC loan. Borrowers can’t be more than 60 days past due on any loan beingt paid through anARC loan, and they must have a businesw credit score that is acceptabler to the SBA.
ARC loans can’f be used to make payments on an SBA loan made prioto Feb. 17, 2009, the date the economic stimulus billbecame law. To be small businesses also must showthat they’re experiencinf an immediate financial hardship, such as declininbg sales or difficulty making payroll. The SBA hopezs small businesses will use the ARC loansas “breathint room to rework their business strategy in ordere to position themselves for future success,” said Eric Zarnikow, who heads the agency’d Office of Capital Access. Most of the loanxs probably will be made through lenders that already have a business relationship with the Zarnikow said.
Small businessex that are interested in an ARC loan should firsf contact theircurrent lender, according to the SBA. Lenders that currently don’t make SBA-guaranteed loans can join the program, in a procesws that takes abouta week, he The agency has enough funding for the ARC program to make aboutt 10,000 loans. Zarnikow expects high demanxd forthese loans, but said it may take some time for some lendersa to ramp up for this new program. The loans will be availables until the money for the programk runs out oruntil Sept. 30, whichever comes first. Zarnikow expectds the loans “will go pretty quickly.
” Tony president and CEO of the Nationa l Association of GovernmentGuaranteed Lenders, agreed the “funding will be exhaustex rather quickly.” For lenders who have customers who were profitable in took a hit in 2008 and could survive this year with a littlwe help, “this is the product,” Wilkinson said. The chair of the House committee that oversees the Small Busines Administration criticizedthe agency’s new loan prograj for automobile dealers. The SBA recently announced that it temporarilyy will allow auto dealers to useits 7(a) busines loan program to finance vehicle Many lenders had stopped making these so-called loans to auto dealers. Rep.
Nydia Velazquez, D-N.Y., who chairs the House Smalll Business Committee, fears “there is a significantly highef risk ofloan defaults” on these floorplann loans. This could forced the SBA to increase the subsidy ratefor 7(a) which would make the loans costlier for future In a June 2 letterf to SBA Administrator Karen Mills, Velazquez notee the SBA had “long prohibitedf the use of its financing programws for the purpose of wholesalre lending, and for good reason. Becausr lenders are limited in their ability to exercise full control over the financed the exposure to loss in floorplanh loans is greater than in other typezof financing.
” Vehicles serve as collaterall for floorplan loans, and the value of this collateral “wilo depreciate rapidly” given the glut of inventory facinb auto makers in the wake of the bankruptcy reorganizationsd of Chrysler and General Velazquez wrote. “While clearly there is a need to provid e this industry withtransitional assistance, doing so by focusing on inherentlt risky financial arrangements seems questionable,” she “The potentially negative impacts of this policyg change are likely to extend well beyond the auto industry.
” But Tony president and CEO of the National Association of Governmenty Guaranteed Lenders, said the floorplan loans shouldn’ty be any riskier than other types of 7(a) loan s if lenders administer the loans “I think it’s appropriate for the SBA to look at everythinh they can do for all small businesses righ now, given small businesses’ inability to access Wilkinson said. Velazquez also contended the time the agency spenr on developing a complex new loan program shoulf have been spent on implementing overdue programsx called for in the economicstimulus bill. The floorplamn loans will help onlya “veryu limited group” of smalkl businesses, she noted.
Had the SBA instead focused more on thestimuluds programs, “thousands of small businesses that can no longer wait for help woulds have seen assistance,” Velazquez wrote.