Small business bridge loans likely to go quickly - bizjournals:

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The SBA will begin accepting applications from lenders for itsnew America’zs Recovery Capital loans June 15. The loans, whichn were created by the economic stimulus will help small businesses make payments onexistingb loans. Through this program, small businesses can borrows upto $35,000 to make up to six monthds of payments on qualifying loans, includinv credit cards if that debt was used for businessz purposes.
The loans will be made through private-sectodr lenders, not the SBA Borrowers won’t have to start repaying the ARC loanss until a year after they receive their last ARC loan They then will pay back the principal on the ARC loan in five Smallbusinesses won’t have to pay interest on the Instead, the SBA will pay the lender a monthly interestf rate of prime plus 2 percentage The SBA also will guarantee 100 percent of the loan’zs amount.
To be eligible for the loans, smal businesses must show they were profitable or had positivd cash flow in at least one of the past two Future cash flow projections must demonstrate that the businesses will be able to repayttheir debts, including the ARC loan. Borrowers can’g be more than 60 days past due on any loan beingg paid through anARC loan, and they must have a businese credit score that is acceptable to the SBA. ARC loanx can’t be used to make payments on an SBA loan made prior to Feb. 17, 2009, the date the economic stimulus billbecame law.
To be eligible, smallo businesses also must showthat they’re experiencing an immediat e financial hardship, such as declining sales or difficulty makinfg payroll. The SBA hopes small businesses will use the ARC loansxas “breathing room to rework their busines strategy in order to position themselved for future success,” said Eric who heads the agency’s Office of Capitapl Access. Most of the loans probably will be made througy lenders that already have a business relationshilp withthe borrowers, Zarnikow Small businesses that are interested in an ARC loan should firstr contact their current lender, according to the SBA.
Lenders that currently don’t make SBA-guaranteed loans can join the in a process that takes about a he said. The agency has enough funding for the ARC progran to makeabout 10,000 loans. Zarniko w expects high demand forthesee loans, but said it may take some time for some lenderx to ramp up for this new program. The loanzs will be available until the money for the progra runs out oruntil Sept. 30, 2010, whichever comes first. Zarnikow expects the loans “wilkl go pretty quickly.” Tony Wilkinson, president and CEO of the Nationapl Association of GovernmentGuaranteed Lenders, agreerd the “funding will be exhausted rather quickly.
” For lenderws who have customers who were profitable in took a hit in 2008 and coulf survive this year with a littlwe help, “this is the Wilkinson said. The chair of the Housw committee that oversees the Small Business Administrationm criticizedthe agency’s new loan program for automobile dealers. The SBA recently announced that it temporarilg will allow auto dealers to useits 7(a) businesws loan program to finance vehicle Many lenders had stopped making these so-calle d “floorplan” loans to auto dealers. Rep. Nydis Velazquez, D-N.Y.
, who chairs the Houss Small Business Committee, fears “there is a significantl y higher risk ofloan defaults” on thesde floorplan loans. This could force the SBA to increas the subsidy ratefor 7(a) which would make the loans costliee for future borrowers. In a June 2 letted to SBA AdministratorKaren Mills, Velazquezs noted the SBA had “long prohibited the use of its financingb programs for the purpose of wholesale lending, and for good reason. Because lenders are limiteed in their ability to exercise full controlo over thefinanced items, the exposure to loss in floorplanb loans is greater than in other types of financing.
” Vehicles serve as collatera for floorplan loans, and the value of this collateral “will depreciate rapidly” given the glut of inventoryu facing auto makers in the wake of the bankruptcy reorganizations of Chrysle and General Motors, Velazquez wrote. “While clearly there is a need to provide this industry withtransitional assistance, doing so by focusing on inherentlyh risky financial arrangements seems questionable,” she wrote. “Thed potentially negative impacts of this policy changwe are likely to extend well beyond theauto industry.
” But Tony president and CEO of the National Associationh of Government Guaranteed Lenders, said the floorplan loanws shouldn’t be any riskier than other typed of 7(a) loans if lenders administer the loanx responsibly. “I think it’s appropriate for the SBA to look at everythingt they can do for all smalol businessesright now, given small businesses’ inabilitg to access credit,” Wilkinson said. Velazquezx also contended the time the agency spent on developing a comple x new loan program should have been spent on implementingf overdue programs called for in the economicstimuluds bill.
The floorplan loans will help onlya “very limited of small businesses, she noted. Had the SBA insteasd focused more on thestimulusw programs, “thousands of small businesses that can no longer wait for help woulfd have seen assistance,” Velazquez