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SBA loan designed to help struggling firms
Senior Reporter Loan programs are available to help stressed businesses through hard times.
The Small Business Association's American Recovery Capital loan program is designed to help businesses stressed by the economy as it provides short-term relief.
The ARC loan provides "up to $35,000 in short-term relief for viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability."
The loans are available, as long as funding lasts, until Sept. 30, 2010.
Greg Bergman, Small Business Development Center director at Central Lakes College in Brainerd, said banks make the loan and the SBA pays the interest and provides a 100 percent guarantee to the bank. The ARC loan is interest-free and payment on the principal is deferred for 12 months with repayment extended up to five years.
Concerns about a tight credit market have been a common issue for businesses. Martin Regalia, senior vice president for economic and tax policy and chief economist at the United States Chamber of Commerce, spoke earlier this month in Baxter.
Regalia said he expects significant improvement in the next two to three months and even more in six months because the Fed will make it more expensive for banks to sit on that liquidity.
Bergman said banks and lenders are protecting themselves from the one bad loan they fear can wipe out a year's profit and there may be errors on the side of too much caution.
The ARC loans, designed for going businesses not start-ups, may be used to make payments of principal and interest up to six months for existing small business loans. The SBA reported the short-term help is designed to provide an immediate infusion of capital so businesses have help as they work to make payments on existing debt. Cash that would have gone to pay the debt is thus available to go into reinvesting in the business - such as buying inventory or retaining jobs.
The SBA reports the best candidates for the ARC loans are businesses that were profitable but are struggling now and are current on payments or have just started to falter.
Bergman said Minnesota is a leader in the number of ARC loans with more than 300 in the state. Banks have full authority whether to make the loans or not.
The SBA doesn't have direct lending authority for this program.
In regard to floorplan financing, where auto dealerships have found struggles getting credit to obtain inventory, there is an SBA pilot loan program through participating lenders.
Bergman said he hasn't heard that many loans have gone through this program in the state. He hoped it might also assist marine dealers.
Bergman said lenders are still concerned about cash flow and the ability of a business to repay the loans and if a dealer will be able to sell the vehicle or boat on the lot or about long-term business viability.
Property value is also a concern as a recent project of a small convenience store stumbled when the agreed upon purchase price was more than the appraisal.
Making it through last winter was a big hurdle, Bergman said and business owners are wondering if they've had enough good summer weeks to get through this coming winter.
"Surviving may come down to a few good weeks," he said. The safety net people had to borrow against real estate or get a home equity loan no longer is there the way it used to be.
"Access to cash isn't what it used to be," he said.
But with the Brainerd-Baxter area as a regional center with major government and health care operations, Bergman said there is a lot of optimism even with the unemployment numbers here.
"I think the worse is behind us," he said.
He said what will be challenging is getting people to want to part with their money and spend. And even if businesses see a 5 percent increase in sales, they are tempering that against being 25 percent down from last year. Businesses that are able to find a value for their customers will generate a profit although it might be tougher and slower and more methodical than it was in the past, Bergman said.
"Business as usual will be different than it was two years ago. There will be a new normal. Maybe we are getting back to what normal is supposed to be."
RENEE RICHARDSON may be reached at renee.richardson@brainerddispatch.com or 855-5852.
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