RISMEDIA, August 3, 2009-(MCT)-The theory was to throw an interest-free lifeline to bakeries, auto shops, travel agencies and other small businesses facing financial hardship during the recession.
The reality? Many small-business owners could find it tough to get a quick financial fix with the new Small Business Administration loan called America’s Recovery Capital.
Some banks, including Comerica Bank, have said they are reviewing the program and determining whether they will participate. Some small-business owners are frustrated because they’d like to get their hands on what was supposed to be their part of the federal stimulus money. Instead, more than a month after the program was rolled out, small-business owners don’t know where to turn.
Small-business owners are being advised to talk to their own lender first-and be prepared for a bit of the runaround. For small-business owners who are struggling to meet expenses, the new but temporary America’s Recovery Capital program could turn out to be a welcome relief.
Existing business owners who face financial hardship could be eligible for an interest-free loan of up to $35,000. The loan would be used to cover principal and interest payments on credit cards, mortgages and other ongoing loans. (When it comes to credit cards, though, credit card borrowers must certify that amounts were used exclusively for business expenses). The borrower would be able to defer payments for 12 months and would not have to pay Small Business Administration related fees with the loans. The loan could apply to most small businesses. (One of the exceptions: It could not apply to a small business that runs a casino).
The trouble spot: Many small businesses may not qualify, and many lenders aren’t exactly thrilled with the SBA ARC program, as it’s called.
To qualify, borrowers, for example, must be facing immediate financial hardship-but they still must prove that the business isn’t going to go out of business anyway.
Not all banks are participating
Carol Wagner, owner of Travel Plus in Commerce Township, Mich., said many small-business owners cannot find a bank that’s offering these loans. “It’s really useless to have money available, if nobody’s willing to offer the program,” said Wagner, whose travel agency has been around 36 years.
Chase began accepting applications for the loans on June 15, the first day applications could be taken. But Chase noted it cannot offer many loans based on the restrictions put into the temporary new loan that was created in the stimulus package signed in February.
Each bank is limited to 50 such loans per week, no matter how many branches the bank has in its system. With 5,000 branches nationally, most branches in the Chase system nationwide cannot make such loans each week, said Mary Kay Bean, a spokeswoman for Chase.
Richard Temkin, Michigan district director for the SBA, said many lenders who are participating in the program will take applications only from small-business owners who have loans at that bank.
Charter One, for example, is participating in SBA’s ARC Loan Program but is making the loan available only to existing small-business customers with loans. As of last week, Temkin said, 13 ARC loans overall have been approved in Michigan. SBA ARC loans will be offered until funding runs out or until Sept. 30, 2010, whichever comes first.
Bob Seiwert, senior vice president for the American Bankers Association, said overall very few banks have decided to offer this new SBA product nationwide because many bankers are concerned that the interest-free aspect of the loan will draw many applicants who would end up defaulting on the loans. “No lender should ever have to make a loan they suspect will not be repaid, even if it’s 100 percent government guaranteed,” Seiwert said. “Banks, at this point in time, are not interested in adding to their problem loan portfolio.” While the loan is 100% backed by the government, he said, bankers still face a costly training process to deal with the complicated loan.
On top of that, the bank must attempt to collect the money from the borrower before it could receive any money from the government if the borrower stopped making payments.
“You’re probably losing money the minute the loan goes out the door,” Seiwert said.
(c) 2009, Detroit Free Press.
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