The SBA has announced a program to offer $35,000 interest-free loans to small businesses. The government will pay the interest – at prime plus 2 percent – directly to the lender. The government will also provide a 100 percent guarantee against principal loss.
The loans are part of the America’s Recovery Capital (ARC) program approved by Congress in February.
Unfortunately for small businesses, many banks have yet to agree to participate. Even banks that are SBA lenders have refused to “take the field” on this one. The reasons cited are lack of clarity on exactly how the program will work, how it will be administered, and the costs (administrative and otherwise) they’ll incur.
Still, if your bank is not participating, you can go to one that is. If your request is approved at the other bank, the borrowed funds will be sent by the government to your creditors so the proceeds can be applied to your existing debt. The prime plus 2 percent rate of interest on the ARC loan will be paid to the bank that originated the ARC loan as compensation for its service to you.
This is good. It makes sense to me.
But I can’t help but ponder the lack of bank participation. Prime plus 2 percent sounds pretty darn fat, especially with no risk of principal loss. Sounds a lot like a guaranteed profit with no risk of loss. Sounds like a slow and soft pitch right over the plate.
Do the banks have a lack of faith in the government’s ability to hold up their end of the bargain? Sure, maybe some paperwork to wade through. Maybe some delays, but SBA lenders should be used to that, right?
My question to the non-participating banks is, “Where’s the love?” Businesses are struggling. If you hold yourself out as a commercial bank (i.e., serving businesses) and place of service to businesses at the core of your reason for existence, isn’t this a win-win?
Taking it further, this 100 percent guarantee program was established to help solve the problems created by the recession and financial crisis. If banks choose not to be part of the solution, do they become part of the problem?
Mr. Bank Executive, I know you have a lot on your desk, and no doubt there are a lot of issues here I am not aware of. But may we ask you to do all that you can to step up to the plate and drive home some runs for small business?
As I see it, the small-business community needs widespread bank participation in this new SBA lending lifeline.
