The lending community, the SBA, and many small business owners, are all "abuzz" about the new U.
S.
Small Business Administration ARC Loans.
For the esoteric among us, this is an acronym for "America's Recovery Capital " Program.
And they should be.
This is the first truly new loan program with the SBA for almost two decades.
Before we get carried away with too much a emotional contagion, let's roll up our sleeves and take a look at the basic elements of this new creature.
Here are the highlights: oLoans up to $35,000.
Contrary to popular belief, there is not simply one loan for the amount of $35,000.
It's up to the lender how much they are going to disperse.
It can be anywhere from $5,000 up to $35,000.
It is my personal opinion that most banks won't mess around with smaller amounts because of the paperwork required.
They will probably fund predominantly in the $20,000 to $35,000 range.
o100% government guarantee.
In the good ol' days, the SBA guaranteed defaults (in other words reimbursing the banks for their losses) from between 50% and 85%.
The American Recovery and Reinvestment Act of 2009 raised the ante to 90%.
For the first time in history, there is a loan that is 100% guaranteed from the Feds.
Translation: Banks will hopefully have more incentive to grant the loans because they know they can be fully reimbursed by Uncle Sam ( aka, you and I as taxpayers).
So, after 120 days with no payments by the borrower and a default, the bank can request reimbursement from the SBA.
Interest free.
That's right, we're not kidding.
Have you ever known of a loan that did not have interest? Well you just found your home, safe and secure from such pesky requirements.
There is interest on the loan, but this is paid directly to the lender from the Federal government.
It never touches your pocket book.
That interest will be paid right away to the bank, typically within a month after funding.
oPrincipal payments only.
As a logical consequence of the foregoing, a borrower will only pay monthly principal payments.
No bank or SBA fees.
It just keeps getting better.
Traditionally, a bank would charge a loan processing fee.
In other words, points.
And, you were required to pay out of the loan proceeds an SBA loan guarantee fee.
This fee was collected and sent to Washington and used as a war chest to pay banks when there has been a default.
The latter fee was eliminated in section 501 of the stimulus bill.
What makes this most amazing, is that the loan processing fee itself has been eliminated.
Banks can't charge a dime, except for the cost associated with liquidating the collateral upon default.
oNo payments for the first year.
Why do I sound like a barker at a going out of business Persian rug dealership?.
Well it's true.
You pay nothing until the thirteenth month.
In another article, we will discuss specifically what it can be used for.
But, generally speaking, there will be direct payments to credit card companies, other banks that hold loans, equipment leasing payments, payments to vendors, etc.
oFive year note.
The term is for five years, with payments fully amortized and no prepayment penalties or balloon payments.
oProgram available through September 30, 2010.
So there you have it.
In every sense of the word, welcome relief for small businesses.
In fact, the very genesis of the program is to give small businesses breathing space in this troubled economy.
Of course, the real question is who is making these loans.
Although it has been relatively slow getting out the gate, there are lenders who are making these much desired loans.
You just have to know where to look for them.
S.
Small Business Administration ARC Loans.
For the esoteric among us, this is an acronym for "America's Recovery Capital " Program.
And they should be.
This is the first truly new loan program with the SBA for almost two decades.
Before we get carried away with too much a emotional contagion, let's roll up our sleeves and take a look at the basic elements of this new creature.
Here are the highlights: oLoans up to $35,000.
Contrary to popular belief, there is not simply one loan for the amount of $35,000.
It's up to the lender how much they are going to disperse.
It can be anywhere from $5,000 up to $35,000.
It is my personal opinion that most banks won't mess around with smaller amounts because of the paperwork required.
They will probably fund predominantly in the $20,000 to $35,000 range.
o100% government guarantee.
In the good ol' days, the SBA guaranteed defaults (in other words reimbursing the banks for their losses) from between 50% and 85%.
The American Recovery and Reinvestment Act of 2009 raised the ante to 90%.
For the first time in history, there is a loan that is 100% guaranteed from the Feds.
Translation: Banks will hopefully have more incentive to grant the loans because they know they can be fully reimbursed by Uncle Sam ( aka, you and I as taxpayers).
So, after 120 days with no payments by the borrower and a default, the bank can request reimbursement from the SBA.
Interest free.
That's right, we're not kidding.
Have you ever known of a loan that did not have interest? Well you just found your home, safe and secure from such pesky requirements.
There is interest on the loan, but this is paid directly to the lender from the Federal government.
It never touches your pocket book.
That interest will be paid right away to the bank, typically within a month after funding.
oPrincipal payments only.
As a logical consequence of the foregoing, a borrower will only pay monthly principal payments.
No bank or SBA fees.
It just keeps getting better.
Traditionally, a bank would charge a loan processing fee.
In other words, points.
And, you were required to pay out of the loan proceeds an SBA loan guarantee fee.
This fee was collected and sent to Washington and used as a war chest to pay banks when there has been a default.
The latter fee was eliminated in section 501 of the stimulus bill.
What makes this most amazing, is that the loan processing fee itself has been eliminated.
Banks can't charge a dime, except for the cost associated with liquidating the collateral upon default.
oNo payments for the first year.
Why do I sound like a barker at a going out of business Persian rug dealership?.
Well it's true.
You pay nothing until the thirteenth month.
In another article, we will discuss specifically what it can be used for.
But, generally speaking, there will be direct payments to credit card companies, other banks that hold loans, equipment leasing payments, payments to vendors, etc.
oFive year note.
The term is for five years, with payments fully amortized and no prepayment penalties or balloon payments.
oProgram available through September 30, 2010.
So there you have it.
In every sense of the word, welcome relief for small businesses.
In fact, the very genesis of the program is to give small businesses breathing space in this troubled economy.
Of course, the real question is who is making these loans.
Although it has been relatively slow getting out the gate, there are lenders who are making these much desired loans.
You just have to know where to look for them.
SHARE
