Interest Free Loans Now Available

Having a hard time financially?

If your business has outstanding borrowing (bank or credit card loans) and has been profitable in one of the past two years but is now suffering “immediate financial hardship,” you may be eligible for up to $35,000 of interest-free money.

That’s right. As part of the America’s Recovery Capital (ARC) program approved by Congress in February, the Small Business Administration (SBA) rolled out new aggressive loan programs to support small, struggling businesses. The loans are available to established, viable, for-profit small businesses that need short term help to make their principal and interest payments on existing business debt.

The $35,000 interest-free “ARC Loans”, as they are referred to, can be obtained from SBA approved lenders (i.e. banks).

The SBA defines “immediate financial hardship” as a “change in the financial condition of the company including, but not limited to, declining sales, frozen credit lines, and difficulty meeting payroll or paying rent or making loan payments.” Businesses also must be able to demonstrate, through quarterly cash flow projections, that they can continue operations and repay the ARC loans. For more on eligibility, click here.

Borrowers will not have to pay any up-front loan fees. ARC loan proceeds will be disbursed directly to the creditors listed by the borrower in the loan application. Creditors will receive the funds over a six-month period after the loan is approved. Repayment need not begin for a year after the last loan disbursement. The repayment term is five years.

ARC loan proceeds can be used to pay home equity loans or credit card debt … so long as the funds borrowed were originally used for business purposes only. Loan proceeds cannot be used for new capital expenditures or repayment of existing SBA debt that was incurred prior to February 17, 2009.

The ARC loan program kicked off June 15 but many banks have been slow, or have declined, to enroll in the program. The reasons cited by the banks have generally been one or more of the following:

1. lack of awareness about the program
2. lack of information about the specifics of the program
3. concerns about whether the bank will be able to earn an acceptable profit margin on the loans

Banks will receive from the U.S. government an interest rate of prime plus 2% and a 100 percent guarantee against loss of principal.

Loans will be available through Sept. 30, 2010 or until all funds have been expended, whichever comes first. SBA officials expect 10,000 ARC loans will be issued prior to the cutoff date. Only one loan per applicant is allowed.

In an attempt to make sure all businesses across the country benefit from the new loans, there will be an ARC loan cap of 50 per week for each SBA-approved lender and no more than 1,000 loans issued from any one lender in total.

Start-up businesses are not eligible for the ARC loans.