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

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The SBA will begin accepting applicationes from lenders for itsnew America’x Recovery Capital loans June 15. The which were created by the economicstimulus legislation, will help smalpl businesses make payments on existing loans. Through this small businesses can borrow upto $35,000 to make up to six monthas of payments on qualifying loans, includin g credit cards if that debt was used for business The loans will be made through private-sector not the SBA itself. Borrowers won’yt have to start repaying the ARC loan until a year after they receive their last ARCloan disbursement.
They then will pay back the principap on the ARC loan in five Smallbusinesses won’t have to pay interest on the Instead, the SBA will pay the lender a monthlyt interest rate of prime plus 2 percentage The SBA also will guarantee 100 percent of the loan’s To be eligible for the loans, small businessed must show they were profitable or had positive cash flow in at leasyt one of the past two Future cash flow projections must demonstrate that the businessese will be able to repay their debts, including the ARC Borrowers can’t be more than 60 days past due on any loan beingv paid through an ARC loan, and they must have a business credit score that is acceptablew to the SBA.
ARC loans can’t be used to make paymentsw on an SBA loan made priorto Feb. 17, 2009, the date the economicv stimulus billbecame law. To be small businesses also must showthat they’rew experiencing an immediate financial hardship, such as declining sales or difficulty making payroll. The SBA hopes small businessed will use the ARC loansas “breathing room to rework theifr business strategy in order to position themselves for futurd success,” said Eric Zarnikow, who heads the agency’s Officee of Capital Access. Most of the loans probablyh will be made through lenders that alreadyu have a business relationship withthe borrowers, Zarnikoq said.
Small businesses that are interestede in an ARC loan should first contac theircurrent lender, accordint to the SBA. Lenders that currently don’t make SBA-guaranteed loans can join the program, in a proceses that takes abouta week, he said. The agencyy has enough funding for the ARC prograj to makeabout 10,000 loans. Zarnikoq expects high demand forthese loans, but said it may take some time for some lender to ramp up for this new The loans will be available untio the money for the program runs out or untiol Sept. 30, 2010, whichever comes first.
Zarnikoaw expects the loans “will go pretty Tony Wilkinson, president and CEO of the Nationa l Association of GovernmentGuaranteed Lenders, agreed the “fundinfg will be exhausted rather quickly.” For lenders who have customersa who were profitable in 2007, took a hit in 2008 and coulfd survive this year with a littlwe help, “this is the Wilkinson said. The chair of the House committes that oversees the Small Business Administration criticizefdthe agency’s new loan program for automobile The SBA recently announced that it temporarily will allows auto dealers to use its 7(a) business loan program to finance vehicle inventory.
Many lenders had stopper makingthese so-called “floorplan” loans to auto Rep. Nydia Velazquez, D-N.Y., who chairs the Housse Small Business Committee, fears “there is a significantly higherr risk ofloan defaults” on these floorplanm loans. This could force the SBA to increasee the subsidy ratefor 7(a) loans, which would make the loane costlier for future borrowers. In a June 2 lettere to SBA AdministratorKarejn Mills, Velazquez noted the SBA had “long prohibited the use of its financingb programs for the purpose of wholesale lending, and for good Because lenders are limited in their abilityh to exercise full controlp over the financed items, the exposure to loss in floorplan loansa is greater than in other types of financing.
” Vehicles servs as collateral for floorplan and the value of this collaterak “will depreciate rapidly” given the glut of inventory facintg auto makers in the wake of the bankruptc y reorganizations of Chrysler and General Velazquez wrote. “While clearly there is a need to provide this industrh withtransitional assistance, doing so by focusinv on inherently risky financial arrangements seems questionable,” she wrote. “The potentially negative impacts of this polichy change are likely to extend well beyond theauto industry.
” But Tony president and CEO of the National Association of Government Guaranteed said the floorplan loans shouldn’ft be any riskier than other types of 7(a) loans if lenders administer the loansa responsibly. “I think it’s appropriatr for the SBA to look at everything they can do for all small businessesright now, given small businesses’ inabilityu to access credit,” Wilkinson said. Velazquez also contended the time the agencyy spent on developing a complexs new loan program shoulsd have been spent on implementing overdue programsd called for in the economicstimulus bill.
The floorplanh loans will help onlya “very limited group” of small businesses, she noted. Had the SBA insteadx focused more on thestimulus programs, “thousandsw of small businesses that can no longet wait for help would have seen assistance,” Velazquez